Innovation Beyond Firm Boundaries: Common Blockholders, Strategic Alliances, and Corporate Innovation

51 Pages Posted: 1 Oct 2015 Last revised: 9 Jan 2018

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Yao Shen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Jing Xie

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: November 1, 2016

Abstract

We analyze the role of common equity blockholders in fostering the formation of strategic alliances, establish a positive causal effect of strategic alliances on corporate innovation, and analyze the channels through which strategic alliances foster innovation. Our findings may be summarized as follows. First, there is a positive relation between the fraction of a firm's industry peers with which it shares common blockholders and the number of strategic alliances that it enters into. Second, there is a positive relation between the R&D-related alliances formed by a firm and its subsequent innovation outcomes, as measured by the quantity and quality of patents filed, especially for alliances backed by common blockholders. Third, we document, for the first time in the literature, a unique method that firms use to share patent rights with their alliance partners, namely, "co-patenting". Fourth, we establish a positive causal relation between the formation of strategic alliances and innovation: first, by comparing the innovation of firms that fail to form alliances to those of firms that are able to successfully form strategic alliances; and second, by using an instrumental variables approach. Fifth, we establish that an important channel through which strategic alliances foster greater innovation is through the more efficient redeployment of human capital (inventors) across alliance partners.

Keywords: Blockholders, Strategic Alliances, Firm Boundaries, Innovation, R&D

JEL Classification: G34, G24

Suggested Citation

Chemmanur, Thomas J. and Shen, Yao and Xie, Jing, Innovation Beyond Firm Boundaries: Common Blockholders, Strategic Alliances, and Corporate Innovation (November 1, 2016). American Economic Association 2017 Meetings Paper, Asian Finance Association (AsianFA) 2016 Conference Paper, Available at SSRN: https://ssrn.com/abstract=2668000 or http://dx.doi.org/10.2139/ssrn.2668000

Thomas J. Chemmanur (Contact Author)

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Yao Shen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

55 Lexington Ave
New York, NY 10010
United States

Jing Xie

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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