The Effects of Institutional Environments on Start-Ups’ Exploratory Innovation

Abstract

This paper investigates the institutional determinants of start-ups’ exploratory innovation. In particular, we focus on the roles of IPR protection. Anchored in innovative search and institutional theory, we argue that strong IPR enforcement may inhibit start-ups’ exploratory innovation because it imposes potential litigation and invalidation risks on start-ups’ novel inventions. Such risks will increase the costs and uncertainty of start-ups’ exploratory activities. We further argue that the presence of certain institutional features can offset the negative impact of strong IPR enforcement. Specifically, we explored the moderating effects of financial munificence, access to legal advice, and regulatory burden. Our empirical analyses of the patenting activities in the Chinese pharmaceutical and biotechnology start-ups furnish evidence for our theory.