The performance implications of patenting – the moderating effect of informal institutions in emerging economies

Abstract

Research has highlighted the role of patenting on firms’ performance without elaborating on how patents can be leveraged to capture value. Drawing on the resource‐based view and institutional theory, this research attempts to extend patenting‐performance debate by examining the moderating effects of informal institutions – or specifically, political ties – on the patenting‐performance relationship. We argue that the leverage of political ties could eliminate uncertainty in patent rights by accessing information, reducing transaction costs, and facilitating bureaucratic arbitration, and therefore leads to better performance. Moreover, considering resource limitations and jurisdictional variations, the benefits of such a moderating approach may be more pronounced in a context characterized by high financial slack or low formal institutional development. Our analysis of panel data from 761 Chinese‐listed companies in the chemical, electronics, and pharmaceutical industries provides supports for both the moderating role of informal institutions on the patenting‐performance relationship and the contingency effects of financial slack and formal institutional development. This paper contributes to patent management literature by elaborating upon the mechanisms of how informal institutions can be leveraged to capture value from firms’ patent portfolios.