Working Paper: NBER ID: w17013
Authors: Ashish Arora; Sharon Belenzon; Luis A. Rios
Abstract: We study the relationship between decentralization of R&D, innovation and firm performance using a novel dataset on the organizational structure of 1,290 American publicly-listed corporations, 2,615 of their affiliate firms, as well as characteristics of 594,903 patents that they hold. We explore the tension between centralization and decentralization of R&D, which trades off between responsiveness to immediate and local business needs and the type of research that can benefit the firm as a whole. To do this, we develop two novel measures of decentralization. First, using intra-firm patent assignments, we distinguish between patents that are assigned to the inventing unit rather than to corporate headquarters. Second, we exploit the variation between firms which posses a central corporate R&D labs and those that do not. We find that centralized R&D tends be more scientific, broader in scope, and have more technical impact, while being more likely in firms that operate within a narrower range of businesses, in complex technologies, or that are less reliant upon acquisitions. Additionally, we find that firms with a more decentralized structure, on average, invest less in R&D, generate fewer patents per R&D, and exhibit greater sales growth and higher market value. We discuss several theories that can explain these relationships, as well as potential avenues for future research.
Keywords: R&D; Decentralization; Firm Performance; Innovation
JEL Codes: D23; D83; L22; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Centralized R&D (O32) | broader scope (H10) |
| Centralized R&D (O32) | greater technical impact (F69) |
| Decentralized structures (L22) | fewer patents (O34) |
| Decentralized structures (L22) | higher sales growth (L25) |
| Share of patents assigned to affiliates increases (L24) | R&D investment decreases (O39) |
| Presence of corporate R&D lab (O32) | R&D investment increases (O39) |
| Decentralization (H77) | market value (D46) |