Corporate innovation in a world of common ownership

Abstract

PurposeThe purpose of this paper is to examine the impact of common ownership on corporate innovation, including innovation input, innovation output and postgrant patents.Design/methodology/approachThis paper uses the ordinary least square model and the difference-in-differences technique to evaluate the effect of institutional interlocking shareholdings on the life cycle of corporate innovation.FindingsThe results show that common ownership impedes innovation measured by patent grants and citations through reduced R&D expenditures. However, common ownership protects postgrant patents by lowering the likelihood that a co-owned firm gets involved in patent litigation and by accelerating the settlement of lawsuits between co-owned firms.Practical implicationsFrom a regulatory perspective, common ownership in younger firms that rely heavily on R&D investment to produce innovation outputs is detrimental and needs to be regulated. However, common ownership in mature firms, which hold a big pool of patents or rely on acquiring patents to compete, is of less concern because of the protective role detected.Originality/valueThe paper provides a first comprehensive look into how same-industry common ownership affects innovation input, innovation output and postgrant patents. The research also reconciles the anticompetitive effect and the coordinative effect of common ownership documented in the literature.