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Disruptive innovation and R&D ownership structures

Author

Listed:
  • Di Guo

    (Brunel University London)

  • Haizhou Huang

    (China International Capital Corporation)

  • Kun Jiang

    (University of Nottingham)

  • Chenggang Xu

    (Cheung Kong Graduate School of Business)

Abstract

This paper provides a theoretical explanation as to why breakthrough innovations seem to be possible only within capitalist economies (Kornai in Dynamism, rivalry, and the surplus economy: Two essays on the nature of capitalism, Oxford University Press, Oxford, 2013). Specifically, our theory explains why disruptive innovations are discovered and financed by large numbers of independently owned small firms in capitalist economies rather than in socialist economies where state ownership is the only option. The key is that the ownership structure of the firm affects the ex-post selection of worthwhile discoveries, which determines the fate of disruptive innovation. Our paper also contributes to empirical work on disruptive innovation, which is missing in the literature. We use new molecular entities (NMEs) in the pharmaceutical industry as a proxy for disruptive innovation. Although pharmaceutical companies are often very large, their R&D projects greatly depend on forming alliances with much smaller independent firms. We find that the number of NMEs discovered by pharmaceutical companies is positively and significantly associated with the number of R&D alliances in which they participate. Our theory is supported by the empirical findings.

Suggested Citation

  • Di Guo & Haizhou Huang & Kun Jiang & Chenggang Xu, 2021. "Disruptive innovation and R&D ownership structures," Public Choice, Springer, vol. 187(1), pages 143-163, April.
  • Handle: RePEc:kap:pubcho:v:187:y:2021:i:1:d:10.1007_s11127-020-00850-1
    DOI: 10.1007/s11127-020-00850-1
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    References listed on IDEAS

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    More about this item

    Keywords

    Disruptive innovation; Ownership; Soft budget constraint; Capitalism; Socialism;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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