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Pyramidal structure, vertical interlock, and corporate innovation

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  • Tian, Shaohua
  • Tam, Lewis H.K.

Abstract

We examine how pyramidal group structure and vertical interlock, i.e. the CEO's or board chair's engagement in an upper-level firm within the group, affect firm innovation. Using a sample of listed firms in Chinese stock markets, we find that firms at lower levels of the group pyramid, i.e., further away from the ultimate parent, are less innovative in terms of research and development (R&D) expense and patent applications than ones closer to the top. Moreover, a firm's innovation activity is influenced by the vertical interlock, whose impact is heterogeneous across the group pyramid. In general, a vertical interlock enhances innovation when the firm is located at a lower level in the group, but it deters innovation when the firm is close to the ultimate parent.

Suggested Citation

  • Tian, Shaohua & Tam, Lewis H.K., 2025. "Pyramidal structure, vertical interlock, and corporate innovation," Global Finance Journal, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:glofin:v:64:y:2025:i:c:s1044028324001376
    DOI: 10.1016/j.gfj.2024.101065
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    More about this item

    Keywords

    Top executive; Vertical interlock; Innovation; Research and development; China;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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