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The Organization of R&D in American Corporations: The Determinants and Consequences of Decentralization

58 Pages Posted: 23 May 2011  

Ashish Arora

Duke University - Fuqua School of Business; National Bureau of Economics Research; Duke Innovation & Entrepreneurship Initiative

Sharon Belenzon

Duke University; NBER; Duke Innovation & Entrepreneurship Initiative

Luis A. Rios

affiliation not provided to SSRN

Date Written: May 2011

Abstract

We study the relationship between decentralization of R&D, innovation and firm performance using a novel dataset on the organizational structure of 1,290 American publicly-listed corporations, 2,615 of their affiliate firms, as well as characteristics of 594,903 patents that they hold. We explore the tension between centralization and decentralization of R&D, which trades off between responsiveness to immediate and local business needs and the type of research that can benefit the firm as a whole. To do this, we develop two novel measures of decentralization. First, using intra-firm patent assignments, we distinguish between patents that are assigned to the inventing unit rather than to corporate headquarters. Second, we exploit the variation between firms which posses a central corporate R&D labs and those that do not. We find that centralized R&D tends be more scientific, broader in scope, and have more technical impact, while being more likely in firms that operate within a narrower range of businesses, in complex technologies, or that are less reliant upon acquisitions. Additionally, we find that firms with a more decentralized structure, on average, invest less in R&D, generate fewer patents per R&D, and exhibit greater sales growth and higher market value. We discuss several theories that can explain these relationships, as well as potential avenues for future research.

Suggested Citation

Arora, Ashish and Belenzon, Sharon and Rios, Luis A., The Organization of R&D in American Corporations: The Determinants and Consequences of Decentralization (May 2011). NBER Working Paper No. w17013. Available at SSRN: https://ssrn.com/abstract=1848571

Ashish Arora (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

National Bureau of Economics Research

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Sharon Belenzon

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
(1) 617 588 1484 (Phone)

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Luis A. Rios

affiliation not provided to SSRN ( email )

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