Innovation and firm value: An investigation of the changing role of patents, 1985-2007

This paper examines how the relationship between firm value and patent-based indicators of inventive activity has changed over time. We use data from more than 33,000 mergers and acquisitions deals between 1985 and 2007, and distinguish between American (USPTO) and European (EPO) patents. Our results indicate that over time EPO patents have become the dominant indicator of innovative activity, while USPTO patents have no effect on firm value near the end of the sample period. The results are robust to controlling for citations and are especially strong for small firms, for firms operating in the drug and chemical industries, and when target and acquiring firms operate in different industries or countrie

Married to the firm? A large scale investigation of the social context of ownership

Research summary: Using a large sample of private firms across Europe, we examine how the social context of owners affects firm strategy and performance. Drawing on embeddedness theory and the institutional logics perspective, we argue that embeddedness in a family, in particular the nuclear family, can strengthen identification and commitment to the firm, but can also induce owners to behave more conservatively. Consistent with this argument, we find that family-owned firms have higher profit margins, returns on assets, and survival rates compared to single-owner or unrelated-owners' firms, but also invest and grow more slowly, hold greater reserves of cash, and rely less on external debt. These differences are most pronounced when the two largest shareholders are married. Our results highlight the key role of marital ties in explaining differences in behavior and performance among firms. Managerial summary: Despite the prevalence of the married-couple ownership structure in firms, little research has been dedicated to understanding how these firms are managed and perform. We examine the behavior and performance of firms owned by married couples in a large panel of closely held Western European firms. We find that married-owner family firms are managed more conservatively relative to firms with unrelated owners and even to other family-owned firms. In particular, married-owner family firms invest and grow more slowly and rely less on external finance. However, they also exhibit greater performance stability and higher profitability. Our findings suggest that social relationships among owners have a large impact on firm strategy and performance, and highlight some potential trade-offs to performance when married couples control firms. Copyright © 2015 John Wiley & Sons, Ltd

A theory of the US innovation ecosystem: evolution and the social value of diversity

This article reviews evidence on the changing structure of the US innovation ecosystem and then develops a simple model of the rise and fall of the large corporate lab. We suggest that the growth of American universities allowed at first the formation of large corporate labs by training scientists to work in industrial labs. Subsequently, however, start-up invention spurred by university research provided an increasingly attractive alternative to internal research, leading to the demise of the large corporate lab. We use this model to assess whether the substitution of corporate research with start-up invention can result in insufficient variety in the innovation ecosystem. We find that, when levels of university research and start-up activity are high, large firms can have socially excessive incentives to focus on “open innovation.” Thus, despite its potential efficiency benefits, a division of innovative labor may reduce diversity in the innovation ecosystem by encouraging “me too” innovations

Interpersonal comparison, status and ambition in organizations

This paper shows that introducing status concerns into a tournament model has substantial implications for the provision of incentives. We emphasize the role of reference groups and determine the optimal number of winners and losers in tournaments. To compensate employees for the disutility of low status, a profit-maximizing employer may be reluctant to demote employees and instead reward workers through promotions. This rationalizes the prevalence of compensation systems which reward winners without explicitly identifying losers. Differences in ambition and ability affect contestants’ efforts and may result in inefficient promotion outcomes. We analyze how to mitigate these inefficiencies when managing a diverse workforce by using mixed and segregated tournament

Knowledge Sharing in Alliances and Alliance Portfolios

We develop a model of knowledge sharing in alliances and alliance portfolios. We show that, once the issue of encouraging effective collaboration is put center stage, many standard intuitions of the learning race view and alliance portfolio literature are overturned or qualified. Partners engage in learning races in some cases, but exhibit “altruistic” behaviors in other cases. They may reduce their own absorptive capacity or increase the transparency of their own operations to facilitate their partner’s learning. In alliance portfolios, we show that not all substitutability between alliance portfolio partners is bad. We distinguish between substitutability in implementation and substitutability in rival benefits and show that the latter is conducive to knowledge sharing. Our work contributes toward putting the literature on learning alliances on a more solid foundation by emphasizing the importance of commitments that leading firms can make to encourage collaboration

Firm performance in networks: the interplay between firm centrality and corporate group size

Corporate groups or networks, which are defined as collections of two or more legally independent firms connected through ownership ties, are prevalent in both developed and developing countries. The separate effects of firm centrality and corporate group size on firm performance have been largely discussed in the literature. However, the effect of their interaction remains underexplored. This paper attempts to fill the gap by introducing a new normalized measure of firm centrality independent of corporate group size. Our empirical analysis is based on a set of global corporate networks encompassing 17.8 million firms and the ownership ties between them extracted from the ORBIS database in 2014. We further investigate the firm performance in the corporate networks above by gathering financial information on 483,835 Italian firms from the AIDA database from 2014 to 2016. We find a positive relationship between firm centrality and firm performance, but the significance of the relationship decreases as corporate group size increases

Optimal coordination in hierarchies

This paper studies the optimal allocation of coordination responsibilities in organizations where duplication of effort is a serious concern. The planner's objective is to minimize a weighted average of the wage bill and the cost of delay. The paper provides conditions under which, in balanced hierarches, communication effort is increasing and the span of control is decreasing as one travels up the hierarchy, with equalities holding if wages are negligible relative to the weight attached to the cost of delay. The analysis suggests that concerns for fast decision-making may be key in explaining the recent trend towards empowerment in firms. Several variants of the basic model are studied, including one focusing on communicative skills and another in which, as urgency increases, the optimal span of control increases and the hierarchy flattens. Evidence supporting these results is discussed