Residual Income Claimancy, Monitoring, and the R&D Firm: Theory with Application to Biotechs

40 Pages Posted: 9 Oct 2001

See all articles by John E. Garen

John E. Garen

University of Kentucky - Gatton College of Business and Economics

Koyin Chang

Ming-Chuan University

Date Written: August 2001

Abstract

This paper models the assignment of residual income claimancy to an R&D manager and applies the model to biotechnology firms. Residual income claimancy provides incentives for the manager to monitor the R&D process. Because the nature of R&D and of monitoring scientific effort is different, our model predicts stark differences in the residual income claimancy of managers and in other aspects of organization for innovative R&D firms like biotechs. In particular, R&D firms are expected to be more owner-managed, more expert-managed, and smaller in size. Cross-sectional data on biotechnology firms is consistent with these implications. Additionally, longitudinal data indicate that as firms alter their focus on biotech research, their organizational structure changes as expected.

Keywords: monitoring, residual income claimancy, R&D, biotechs, incentives and organizations

JEL Classification: L20, D20

Suggested Citation

Garen, John E. and Chang, Koyin, Residual Income Claimancy, Monitoring, and the R&D Firm: Theory with Application to Biotechs (August 2001). Available at SSRN: https://ssrn.com/abstract=286352 or http://dx.doi.org/10.2139/ssrn.286352

John E. Garen (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

Department of Economics
Lexington, KY 40506
United States
859-257-3581 (Phone)
859-323-1920 (Fax)

Koyin Chang

Ming-Chuan University ( email )

Department of Economics
TaoYuan
Taiwan

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