Abstract
Previous research argues that the hiddenness of knowledge is an important determinant of the R&D governance decision between market and hierarchy; a low level of hidden knowledge in R&D leads to the choice of hierarchy and a high level of hidden knowledge leads to the choice of market. However, the lack of empirical examination limits our understanding on the true impacts of hidden knowledge on the governance decision. Using pharmaceutical drug innovation projects, this paper empirically examines the impact of hidden knowledge and shows that hidden knowledge has not only a direct impact, as the previous research claims, but also a joint effect, with the number of knowledge inputs used in the problem solving (size of N), on the governance decisions. Our results predict that when N is large, a low level of hidden knowledge in R&D can lead to the choice of market governance to find relevant knowledge inputs.
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