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- Title
Do Informal Contracts Matter for Corporate Innovation? Evidence from Social Capital.
- Authors
Gupta, Atul; Raman, Kartik; Shang, Chenguang
- Abstract
We examine the relevance of informal contracting mechanisms for corporate innovation. Using social capital to capture the social costs imposed on opportunistic behavior by management, we report evidence that firms headquartered in states with higher levels of social capital are associated with more innovation. This result is more pronounced when employees are more susceptible to holdup (e.g., firms with low labor union coverage, firms located in states with weak legal protections for employees, and firms surrounded by few external employment opportunities) and when employees face higher levels of information asymmetry. Our study highlights the importance of informal contracts for innovation.
- Subjects
INNOVATIONS in business; SOCIAL capital; CORPORATE headquarters; CONTRACTS for work &; labor; OPPORTUNISM (Psychology)
- Publication
Journal of Financial & Quantitative Analysis, 2020, Vol 55, Issue 5, p1657
- ISSN
0022-1090
- Publication type
Article
- DOI
10.1017/S0022109019000498