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

We examine the effect of communication technologies on innovation within multinational enterprises (MNEs) by exploiting the staggered country-level introduction of broadband. Drawing upon property-rights theory, we expect that the allocation of R&D control rights within the firm will influence the benefits MNEs realize from communication technologies on innovation. In particular, we theorize that because of the different roles and responsibilities that headquarters and subsidiaries hold within the firm, the effect of communication technologies will depend on whether headquarters or a subsidiary has control rights over its activities. We find that post-broadband increases in patent productivity in R&D subsidiaries is contingent on whether the headquarters or another subsidiary controls the rights to the R&D subsidiary’s innovation. Only subsidiary-controlled R&D exhibit significant improvements in the quantity and quality of patents. Headquarters fails to leverage broadband to foster innovation in R&D subsidiaries. We contribute to the literature on the management of innovation by studying how intra-firm control rights affect knowledge creation and knowledge sharing within the firm. Our study highlights the importance of the internal organization of R&D to understand the implications of technology on innovation.