Bhattacharya, Sourav and Chakraborty, Pavel and Chatterjee, Chirantan (2018) Intellectual Property Regimes and Firm Structure. Working Paper. Lancaster University, Department of Economics, Lancaster.
Abstract
We use The Patents (Amendment) Act, 2002 in India as a quasi-natural experiment to identify the causal e¤ect of higher incentives for innovation on firm organizational features. We find that stronger intellectual property (IP) protection has a sharper impact on technologically advanced firms, i.e., firms that were a-priori above the industry median in terms of technology adoption. While there is an overall increase in managers' share of compensation, this increase is about 1.6-1.7% more for high-tech firms. This difference can be attributed to a larger increase in performance pay for high-tech firms. The reform also leads to a significant increase in number of managerial layers and number of divisions for high-tech firms relative to low-tech firms, but only the latter effect is correlated with the differential change in managerial compensation. Broadly, we demonstrate that stronger IP protection leads to an increase in both within-firm and between-firm wage inequality, with more robust evidence for between-firm inequality.