Due Diligence, Research Joint Ventures, and Incentives to Innovate

33 Pages Posted: 23 Jun 2010 Last revised: 7 Sep 2011

See all articles by Simona Fabrizi

Simona Fabrizi

Massey University

Steffen Lippert

University of Auckland - Department of Economics

Date Written: September 4, 2011

Abstract

The decision to cooperate within R&D joint ventures is often based on `expert advice.' Such advice typically originates in a due diligence process, which assesses the R&D joint venture's profitability, for example, by appraising the achievability of synergies. We show that if the experts who advise the owners considering forming an R&D joint venture are also responsible for R&D efforts, they can have incentives to withhold information about the extent of those synergies. Owners optimally react by reducing the incentives to innovate in low-value projects developed within R&D joint ventures and in high-value projects developed within competing research organizations.

Keywords: Research and development, due diligence, experts' advice, joint venture, synergies, asymmetric information, moral hazard, information withholding (concealing) and revelation

JEL Classification: D82, D86, L5, L24, O31, O32, O38

Suggested Citation

Fabrizi, Simona and Lippert, Steffen, Due Diligence, Research Joint Ventures, and Incentives to Innovate (September 4, 2011). Massey U. College of Business Research Paper No. 12, Available at SSRN: https://ssrn.com/abstract=1629225 or http://dx.doi.org/10.2139/ssrn.1629225

Simona Fabrizi

Massey University ( email )

Auckland
New Zealand
+64 9 414 0800 Ext 9335 (Phone)
+64 9 441 8177 (Fax)

HOME PAGE: http://www.massey.ac.nz/~sfabrizi

Steffen Lippert (Contact Author)

University of Auckland - Department of Economics ( email )

Auckland
New Zealand

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