Working Paper: CEPR ID: DP11064
Authors: Heng Geng; Harald Hau; Sandy Lai
Abstract: Innovation processes under patent protection generate hold-up problems if complementary patents are owned by different firms. We show that in line with Hart and Moore (1990), shareholder ownership overlap across firms with patent complementarities helps mitigate such hold-up problems and correlates significantly with higher patent investment and more patent success as measured by future citations. The positive innovation effect is strongest for concentrated overlapping ownership and for the cases when the overlapping shareholders are dedicated investors.
Keywords: holdup problems; innovation; institutional ownership; patents
JEL Codes: G31; G32; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| overlapping shareholders influence management decisions (G34) | internalize future patent rent transfers (F16) |
| concentration of overlapping equity stakes (G34) | enhances effectiveness of shareholder overlap (G34) |
| joint equity ownership between downstream innovators and upstream firms controlling complementary patents (O36) | mitigate holdup problems (D86) |
| joint equity ownership between downstream innovators and upstream firms controlling complementary patents (O36) | increased R&D investment (O39) |
| joint equity ownership between downstream innovators and upstream firms controlling complementary patents (O36) | greater patent success (O34) |
| higher shareholder overlap (G34) | increased patent success (O34) |