This dissertation compiles two related essays examining the innovations in an emerging economy. Recent years have witnessed the spur of innovations in emerging economies who are the later comers in innovations; however, the emerging economies are still filled institutional voids. My dissertation in general asks: how might these institutional voids affect the firm’s innovation-related activities or strategies in an emerging economy?

Essay 1 examined how particular governance structure, the excess control rights of largest shareholders, might affect the firm’s innovation inputs (R&D investment). Contradictory to the conclusions of principle-to-principle agency theory that excess control rights is always detrimental to firms, I argued that the excess control rights could address...[ Read more ]

This dissertation compiles two related essays examining the innovations in an emerging economy. Recent years have witnessed the spur of innovations in emerging economies who are the later comers in innovations; however, the emerging economies are still filled institutional voids. My dissertation in general asks: how might these institutional voids affect the firm’s innovation-related activities or strategies in an emerging economy?

Essay 1 examined how particular governance structure, the excess control rights of largest shareholders, might affect the firm’s innovation inputs (R&D investment). Contradictory to the conclusions of principle-to-principle agency theory that excess control rights is always detrimental to firms, I argued that the excess control rights could address the founders’ concern of innovation risks and the impediments from investors, thus promoting the innovations of entrepreneurial firms. Furthermore, the strong governance mechanisms at different levels could mitigate the effect of excess control rights on the innovations inputs. Using a dataset of innovative firms on Chinese growth enterprise board, I found strong empirical supports.

Essay 2 aimed to address the question: how firms profit from innovations in an emerging economy. Teece (1986) suggested that profiting from innovations required firms to procure the provision of complementary assets and protection on the innovations from the both the political and economic stakeholders. In developed economies, firms could rely on the formal contracts, laws and regulations to manage the dependence on those stakeholders. However, it remained underexplored how firm addressed the dependence to profit from innovation where the formal mechanism is ineffective in emerging economies. I proposed that, an innovative firm’s emphasis on relational strategies through entertainment (wining and dining) can manage the firm’s dependence on both the political and economic stakeholders, securing the resource and protection provisions, thus helping it profit from its innovations. However, in a region with well-developed factor markets or in a region with strong enforcement of intellectual property rights, firms were less dependent on those stakeholders, thus the role of relational strategy was weakened. These arguments were supported by analysis of two data sets on firms in China.