Communication Technology and Innovation in Multinational Enterprises: The Role of Intra-firm Control Rights

Abstract

We examine the effect of communication technologies on innovation within multinational enterprises (MNEs) by exploiting the staggered country-level introduction of broadband. We expect that the allocation of control rights within the firm will influence the benefits that MNEs realize from communication technologies. In particular, we theorize that because of the different responsibilities that headquarters and subsidiaries hold, the effect will depend on whether headquarters or another subsidiary controls the rights to the focal R&D subsidiary’s innovation. We find that post-broadband introduction only subsidiary-controlled R&D exhibit significant improvements in the quantity, quality, and market value of patents. A battery of analyses examining patenting patterns and heterogeneity in MNE characteristics suggests that headquarters fails to fully leverage broadband to foster innovation in the R&D subsidiaries it controls because headquarters face greater demands for attention. We contribute by studying how intra-firm control rights affect knowledge creation and knowledge sharing within the firm. Our study highlights the importance of the delegation of control to understand the implications of technology on innovation and its market value.