Corporate innovation in developing countries: role of legal institutions and property rights protection

Abstract

PurposeThe purpose of this study is to identify the impact of legal institutions and property rights protection on corporate innovation among developing countries.Design/methodology/approachTo testify these hypotheses, we use firm-level data from the World Bank Enterprise Survey, and country-level information from Worldwide Governance Indicators, World Development Indicators and Global Competitiveness Reports. The final data set consists of 24,166 firm observations, from 41 developing countries.FindingsBy using a wide range of control variables, the results propose that well-organized legal institutions stimulate corporate innovation . More precisely, a strong rule of law, effective government and protected property rights encourage firm-level innovation. Countries’ rule of law guarantees to solve disputes between parties and provide legitimate rights in case of innovation replication. Rule of law also directs that rules made by policymakers to secure the rights of innovators are well enforced. Moreover, strong property rights ensure innovators that the innovations are protected, and in case of any infringement, the guilty party will be punished and fined.Originality/valueThis study aims to investigate the role of all effective aspects legal institutions and property rights protection on corporate innovation among developing countries. Such security to prevent unlawful duplication will ultimately increase innovation.