The Ownership and Financing of Innovation in R&D Races

59 Pages Posted: 11 Nov 2002

See all articles by Paolo Fulghieri

Paolo Fulghieri

University of North Carolina Kenan-Flagler Business School; European Corporate Governance Institute (ECGI)

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: December 2001

Abstract

This paper develops a theory of the organization form and financing of innovation activities where integration, venture capital financing, and strategic alliances emerge as optimal responses to competitive pressures of the R&D race, the stage of the research and product development, and the severity of the financial constraints. We model the relationship between a research unit and its downstream firm in the context of a R&D race with a competing pair. We show that the choice of organization and financial structure of the R&D activity plays a strategic role by committing a research unit and its downstream firm to an accelerated R&D activity. We find that integrated organization structures are more likely to emerge when the downstream firm is more productive than the research unit, competition in the R&D race is more intense or the R&D cycle involves late-stage research, and when the research unit is financially constrained. Non-integration and independent venture capital financing are more likely to emerge when the research unit is more productive than the downstream firm, when competition in the R&D race is less intense or the R&D cycle involves early-stage research, and when the research unit is not financially constrained. Finally, corporate venture capital and strategic alliances are more likely to emerge when competition in the R&D race is more intense, the R&D cycle involves late-stage research, and when the productivity of the research unit is high.

Suggested Citation

Fulghieri, Paolo and Sevilir, Merih, The Ownership and Financing of Innovation in R&D Races (December 2001). AFA 2003 Washington, DC Meetings. Available at SSRN: https://ssrn.com/abstract=342722 or http://dx.doi.org/10.2139/ssrn.342722

Paolo Fulghieri (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
346
rank
13,239
Abstract Views
1,872
PlumX Metrics