Type of Ownership, Risk and Innovation in different institutional environments
Authors:   , Stoyneva Irina , Narayanan Vadake K. 
Published: July 2021

The idea that innovation is an important source of economic growth dates back to the introduction of the Schumpeterian theory of economic development. Ever since, scholars have accumulated stocks of knowledge about determinants of innovation in a number of review papers. Despite the fact that the existing research on innovation has looked into the antecedents, effects, influential moderators and types of innovation, there still remain important gaps that need to be addressed. One important omission refers to the widely held assumption of scholars that innovation is related to risk, due to its inherently risky nature. A systematic review of the existing research on the topic of risk in the field of strategic management, further reveals that very few studies conceptualize the link between the constructs or attempt to study them simultaneously in an empirical setting. Additionally, current work on both risk and innovation analyzes each of these constructs in the context of advanced economies. Because the applicability of fundamental mechanisms and models originating in developed economies to the context of emerging economies has been previously questioned, the understanding of the nature of the relationship between risk and innovation is incomplete without the consideration of the impact of institutional factors. This study addresses several research questions in regard to the intersection between antecedents of innovation, innovation and the institutional environment. I attempt to examine the aforementioned questions in two distinct but related essays. The first essay offers a critical review of the existing research with focus on risk in the field of strategic management. The general findings reveal fragmented scholarship, bound by the context of each discipline with brief sporadic cross-disciplined related studies that fail to advance our understanding and interpretations of the nature of risk. I survey the conceptualizations of risk of 88 relevant papers, published in outlets, consistently recognized as top journals in management, finance, and management related disciplines, in an effort to synthesize prior research efforts and identify common themes and patterns of variation. Reviewing the existing stock of knowledge from 2006 until 2013, this study finds three types of risk conceptualizations (external or exogenous risk, internal or endogenous risk and within individual risk or endowment) and two ontologies (socially constructed and realistic) are dominant in the literature. In order to organize prior work into an integrative and coherent body of research, I propose a type of risk conceptualization - type of ontology framework that can map out and link various antecedents, dimensions and outcomes of risk and facilitate future research efforts, aimed at better understanding of the nature of risk as well as identifying fundamental research questions that remain unanswered. Within the review on risk as a subset of studies I further focus on the literature on risk and innovation in an effort to evaluate and assess the role of risk and its implications for innovation. In the second essay, I propose a conceptual model in an attempt to explain the relationship between risk and innovation. Using prospect theory and agency theory perspectives, I develop hypotheses that theorize about firm level risk being an antecedent to innovation and I further expect to find that exogenous factors, such as certain dimensions within the institutional environment, will influence the relationship between risk and innovation. I predict that greater firm level risk, as measured by the fluctuations in the income generated, will negatively impact innovation. In addition, I anticipate that certain institutional environment factors will moderate the negative relationship between risk and innovation so that this effect will be weaker in the context of strong pro-market orientation of the country vs. strong pro-social orientation. This study makes two important contributions to the literature. First, by conceptually and empirically linking risk to innovation, this study attempts to clarify the direction and the nature of the true relationship between the constructs. Second, the study then injects the moderating impact of the pro-market vs. pro-social orientation into the link between risk and innovation, thus responding to calls in existing research for more fine-grained analysis of the institutional environment. I then focus in the context of corporate governance and explore the impact of certain corporate governance mechanisms on innovation. To better understand the relationship between corporate governance and innovation, I further expand the existing research by proposing that certain institutional environment factors will moderate this link. I argue that the impact of the type of institutional ownership on innovation is context dependent and is affected by the strength of minority investor protection in the country, used as a proxy to reflect the different origin of the country's legal systems.