Allocation of Property Rights and Technological Innovation within Firms

Magelssen, C (2020) Allocation of Property Rights and Technological Innovation within Firms. Strategic Management Journal, 41 (4). pp. 758-787. ISSN 0143-2095

Abstract

Research summary:
This paper examines whether ownership rights to strategic assets within firms affects innovation. Although existing research maintains that strategic assets can be leveraged freely within the firm, many firms allocate ownership rights to strategic assets to business units or subsidiaries. While scholars have examined strategic asset ownership rights as a tool for tax avoidance, scholars have yet to study its effects on innovation. In the context of multinational firms, I find evidence that subsidiaries with ownership rights produce more technological innovations and are more responsive to shocks to R&D opportunity than those without ownership rights. Additionally, the results provide evidence of the cost of tax avoidance strategies. When subsidiaries in technologically‐advantaged locations do not hold ownership rights, they produce fewer and less impactful innovations.
Managerial summary: A key decision made by multinational firms is which subsidiaries should hold ownership rights to the firm's strategic assets. The choice often entails a trade‐off between allocating ownership rights to subsidiaries best positioned to innovate and manage the strategic asset versus to subsidiaries in income shielding locations to reduce the firm's tax bill. This paper examines whether subsidiary strategic asset ownership rights matter for subsidiary innovation. I find evidence that subsidiaries with ownership rights produce greater quantity and quality of innovations and are more responsive to changes in R&D opportunity than subsidiaries without ownership rights. This study highlights an important ramification of tax avoidance strategies: locating strategic asset ownership rights away from subsidiaries in regions of expertise can adversely affect innovation within the firm.

More Details

Item Type: Article
Subject Areas: Strategy and Entrepreneurship
Additional Information:

© Wiley 2019. This is the peer reviewed version of the following article: Magelssen, C. (2019), Allocation of Property Rights and Technological Innovation within Firms. Strategic Management Journal, which has been published in final form at https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.3103. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

Date Deposited: 03 Dec 2019 10:54
Last Modified: 02 Apr 2020 08:06
URI: http://lbsresearch.london.edu/id/eprint/1286
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