Intracompany Governance and Innovation
This paper examines the relation between ownership, corporate form, and innovation for a cross-section of private and publicly traded innovating firms in the US and 15 European countries. A striking novel observation emerges from our analysis: while most innovating firms in the US are publicly traded conglomerates, a substantial fraction of innovation is concentrated in private firms and in business groups in continental European countries. We find virtually no variation across US industries in the corporate form of innovating firms, but a substantial variation across industries in continental European countries, where business groups tend to be concentrated in industries with a slower and more fundamental innovation cycle and where intellectual protection of innovators seems to be of paramount importance. Our findings suggest that innovative companies choose the corporate form most conducive to R&D, as predicted by the Coasian view of how firms form. This is especially true in Europe, where there are fewer regulatory hurdles to the formation of business groups and hybrid corporate forms. It is less the case in the US, where conglomerates are generally favored.
We thank Liat Oren for invaluable assistance with the programming of the ownership algorithm and Hadar Gafni for excellent research assistance. We also thank Luca Enriques, Daniel Ferreira, Ronald Gilson, Joshua Lerner, Randall Morck, Daniel Paravisini, Katharina Pistor, David Robinson, John Van Reenen and Daniel Wolfenzon for helpful comments. All remaining errors are our own. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
- In the United States most innovating firms are publicly-traded conglomerates - a substantial fraction of innovation is concentrated...