This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving * This version of the article has been accepted for publication and undergone full peer review but has not been through the copyediting, typesetting, pagination and proofreading process, which may lead to differences between this version and the publisher's final version AKA Version of Record.

Purpose The purpose of this paper is to determine whether the strength of corporate governance influences the firm’s ability to retain their key knowledge workers or inventors. Design/methodology/approach This paper links agency and innovation theory to develop the hypotheses. Agency theory predicts that the interests of employees are counter to those of firm owners. The authors predict that as shareholder power grows as corporate governance strengthens, inventors who are highly productive, and those who pursue risky but valuable exploratory innovation will leave the firm. Given prior scholarship in innovation theory establishing the critical contributions that new knowledge creation and exploratory innovation make to firms’ competitive advantage, the authors consider whether stronger firm-level corporate governance leads to the erosion of the firm’s competitive advantage. The hypotheses are empirically tested using generalized least squares estimation on a data set that combines data on firms, their patents and the governance provisions these firms adopt. Findings Using a 10-year sample of publicly traded US firms, the authors find that stronger corporate governance erodes the very foundation of a firm’s innovation capabilities. Stronger corporate governance reduces management job security, which makes managers more risk-averse. This heightened “managerial myopia” results in increased departures of highly valuable inventors employed by the firm. The authors show that these departing inventors are more productive inventors than those who remain and engage in more exploratory R&D than the remaining inventors at the firm. Originality/value The findings raise questions on the appropriateness of the adoption of governance provisions strengthening shareholder rights in firms pursuing innovation.

No abstract

Drawing on absorptive capacity and social network theory, we examine the effect of intrafirm network closure, tie strength, and diversity on firms? recombination speed of technologically distant external knowledge. Results from an event history study of 113 pharmaceutical firms, which engage in technology licensing in the period 1986-2003, reveal that the time to recombine external knowledge into own invention increases with technological distance. However, intrafirm co-invention network closure and diversity shorten the time to recombine distant external knowledge. These results mark the importance of inventors? knowledge networks as antecedent of the speed with which firms can absorb external knowledge.

No abstract