The Role of Effective Control Systems in Capturing Innovation

Abstract

This study examines the role of effective control systems in capturing corporate innovation. Although we expect effective control systems to improve information flows within the firm by allowing managers to better identify and patent their most valuable intellectual property, a priori this relationship is unclear as these same control systems may create an overly restrictive bureaucratic environment that mitigates the benefits of effective controls on innovation. Consistent with our expectation, we find evidence that effective control systems are associated with more innovative capture (i.e., number of patents, patent citations, and weighted citations). Our results are robust to the inclusion of firm fixed effects, remediation tests, entropy balancing, and the use of the market value of patents as an alternative measure of the importance of the innovation. Overall, the results of our study suggest higher quality control systems are positively associated with the ability of a firm to get the most out of its innovative projects.

Keywords: Innovation Capture, Internal Controls, Patents

JEL Classification: M41, O31