Foreign Expansion and Corporate Innovation: Cross-Country Evidence

41 Pages Posted: 22 Jan 2019 Last revised: 20 Aug 2022

See all articles by Hoang Luong

Hoang Luong

The University of Queensland - UQ Business School

Lily Nguyen

The University of Queensland - UQ Business School

Peter K. Pham

University of Sydney Business School; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Date Written: January 21, 2019

Abstract

Using novel and comprehensive data on the timing of subsidiary establishment, we examine how firms' foreign expansions influence their ability to innovate. We find that after an expansion, especially into a highly innovative country, a firm significantly increases innovation output and its patents are more likely to cite those originating from the host country. To address endogeneity, we focus on plausibly exogenous breakthrough inventions and show that they mainly benefit firms with a subsidiary presence in the country where such an innovation shock occurs. An expansion is also followed by an increase in equity ownership of institutional investors, including those from host countries, suggesting that the improvement in innovation is incentivized by appropriate shareholder monitoring. Overall, we add new evidence on one important reason for why multinationals tend to be highly innovative firms: they achieve significant agglomeration economies by efficiently exploiting the spatially concentrated knowledge capital around the world.

Keywords: Corporate Innovation, Foreign Expansion, Knowledge Spillovers, Institutional Investors

JEL Classification: G15, G30

Suggested Citation

Luong, Hoang and Nguyen, Lily and Pham, Peter Kien, Foreign Expansion and Corporate Innovation: Cross-Country Evidence (January 21, 2019). 2019 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=3319551 or http://dx.doi.org/10.2139/ssrn.3319551

Hoang Luong

The University of Queensland - UQ Business School ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Lily Nguyen (Contact Author)

The University of Queensland - UQ Business School ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Peter Kien Pham

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
+61 2 9036 9103 (Phone)
+61 2 9351 6461 (Fax)

Institute of Global Finance, UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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