Disruptive Innovation and R&D Ownership Structures of the Firm

31 Pages Posted: 16 Jun 2020

See all articles by Di Guo

Di Guo

Brunel University London

Haizhou Huang

China International Capital Corporation Limited

Kun Jiang

University of Nottingham

Chenggang Xu

Cheung Kong Graduate School of Business

Date Written: June 2020

Abstract

Among the 87 revolutionary innovations in the world over the life of the Soviet Union, 86 were invented in capitalist economies (Kornai, 2013). This paper studies why this is the case. This paper provides a theoretical foundation, which explains why disruptive innovations are organized and financed with a large number of independent small firms in a capitalist economy. Whereas not allowing private ownership, this kind of arrangement is not an option in an economy where only state ownership exists. This paper also contributes to empirical work on disruptive innovation, which is missing in the literature. We use FDA approved new molecular entities (NMEs) in the pharmaceutical industry as a proxy of disruptive innovation in the industry. Although pharma firms are often very large in size, their R&Ds for developing NMEs depend deeply on forming R&D alliances with independent small R&D firms. We find NMEs invented by a pharma firm is positively and significantly associated with the number of R&D alliances that the firm creates.

Keywords: Capitalism, Innovation, Socialism, Soft-budget Constraint

Suggested Citation

Guo, Di and Huang, Haizhou and Jiang, Kun and Xu, Chenggang, Disruptive Innovation and R&D Ownership Structures of the Firm (June 2020). CEPR Discussion Paper No. DP14861, Available at SSRN: https://ssrn.com/abstract=3628181

Di Guo (Contact Author)

Brunel University London ( email )

Kingston Lane
Uxbridge
United Kingdom, London Ub8 3PH
United Kingdom

HOME PAGE: http://https://www.brunel.ac.uk/people/di-guo

Haizhou Huang

China International Capital Corporation Limited ( email )

28th Floor, China World Tower 2
No. 1 Jian Guo Men Wai Avenue
Beijing 100004
United States

Kun Jiang

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Chenggang Xu

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

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