Abstract
We investigate the effect of corruption on product, process, marketing, and organizational innovation in new ventures. Based on differences in the ability of firms to appropriate economic returns from these types of innovation, we argue that corruption undermines the formal property protection associated with product innovation, privileging the other kinds of innovation, which are less susceptible to the effects of corruption and thus provide more attractive returns. Furthermore, we argue for a differential impact of corruption on innovation for new ventures relative to incumbent firms. We find that corruption reduces product innovation, but increases process, marketing, and organizational innovation. The impact of corruption on the product innovation of new ventures is more severe relative to that of incumbent firms, while the positive impact of corruption on marketing and organizational innovation is weaker for new ventures.
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