casidhe troyer

Abstract

This study investigates the differential effects of headquarters versus subsidiary management of R&D subsidiaries. Using confidential data on the units that manage R&D subsidiaries and exploiting the staggered country-level introduction of broadband communication technology as a shock to the ability of the managing unit to communicate with the R&D subsidiary, we find that R&D subsidiaries managed by headquarters experience substantially smaller improvements in the quantity, quality, and market value of patents than R&D subsidiaries managed by another subsidiary. The effect of the introduction of broadband on co-invented patents and knowledge sharing between R&D subsidiaries and their managing unit is significantly larger for subsidiary- than headquarters-managed R&D subsidiaries. These patterns are more pronounced when the firm has recently undertaken an M&A at the time of broadband introduction, when the managing unit controls more R&D subsidiaries, when the R&D subsidiary is technologically distant from the managing unit, and for larger and more diversified firms. We employ a battery of analyses examining patenting patterns and heterogeneity in multinational firm characteristics to understand the mechanisms and rule out alternative explanations. Our findings are consistent with headquarters' relatively larger corporate-level demands than managing subsidiaries crowding out their attention to fostering innovation in the R&D subsidiaries they manage. This study highlights the importance of managing subsidiaries in the innovation performance of multinational firms.