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Ownership Change and Firm Innovation: The Mediating Role of Interest Alignment

Author

Listed:
  • Wenlong He

    (Business School, University of International Business and Economics, Beijing 100029, China)

  • Zi-Lin He

    (Tilburg School of Economics and Management, Tilburg University, 5000 LE Tilburg, Netherlands)

  • Tony W. Tong

    (Leeds School of Business, University of Colorado, Boulder, Colorado 80309)

Abstract

Although many studies suggest a strong link between ownership and corporate strategy, little research has examined how ownership change matters for firm innovation. This paper leverages the context of privatization to study how firms’ transition from state ownership to private ownership shapes innovation. We argue that privatization helps to alleviate not only traditional principal–agent conflicts, but also principal–principal conflicts in firms of concentrated ownership, leading to greater innovation. Exploiting a major privatization reform in China, we show that privatization enhances firm innovation and that this effect is mediated by interest alignment between firm owners and managers as well as that between controlling and minority shareholders. This study contributes to a dynamic view of ownership and innovation by delineating the underlying mechanisms through which privatization affects innovation.

Suggested Citation

  • Wenlong He & Zi-Lin He & Tony W. Tong, 2020. "Ownership Change and Firm Innovation: The Mediating Role of Interest Alignment," Strategy Science, INFORMS, vol. 5(1), pages 17-38, March.
    • Handle: RePEc:inm:orstsc:v:5:y:2020:i:1:p:17-38
    DOI: 10.1287/stsc.2019.0096
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    3. Hsu, David H. & Hsu, Po-Hsuan & Zhao, Qifeng, 2021. "Rich on paper? Chinese firms’ academic publications, patents, and market value," Research Policy, Elsevier, vol. 50(9).

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