Going Public and Innovation Strategy : The Role of Ownership Structure

This paper examines two related research questions: (1) Does a firm's innovation strategy affect its going public (vs. staying private) decision? (2) Does the change of ownership associated with going public influence a newly public firm's subsequent innovation strategy? Using a dataset consisting of both private and newly public U.S. firms' patent and financial data over the period 1997-2008, we find that private firms doing exploitative innovation are more likely to go public, and that once public, these firms pursue even more exploitative innovation. Importantly, we show that the positive relationship between going public and doing exploitative innovation is weakened if there is a higher proportion of dedicated institutional shareholding, a higher proportion of management shareholding, or a dual-class ownership structure in the newly public firm. We conclude that innovation strategy is an important antecedent to, and shaped by, the decision to go public. Implications for theory and practice are discussed