The Impact of Technology Licensing Payment Mechanisms on Firms' Innovative Performance

Although numerous papers have examined the ways in which firms can improve their innovative performance through technology alliances, empirical research on the effect of contract structures in technology licensing has been scarce. This study provides evidence that the payment mechanisms agreed upon in licensing contracts affect the licensee firms¡¯ innovative performance. Based on a dataset of technology licensing contracts concluded by small- and medium-sized enterprises around the world, this paper analyzes the influence of fixed-fee payments and ongoing payments?including royalty, milestone, and equity payments?on firm performance. The findings reveal that ongoing payments are more likely to positively influence the innovative performance of licensee firms. The results also suggest that equity grants to the licensor would not impact the licensee¡¯s performance as much as fixed-fee payments. These outcomes provide crucial insights into the ways in which small high-tech firms can utilize their external technology resources.