Intellectual property rights, non-market considerations and foreign R&D investments

Prior research has focused on how firms use a variety of organizational mechanisms to protect their R&D investments from misappropriation risks in foreign countries. Little is known, however, about how firms can rely on non-market factors to induce preferential treatment by host government authorities, thereby protecting their intellectual property overseas. In this paper, we investigate two such non-market factors, one at the country level, the other at the firm level, that are likely to influence the choice of where firms locate their innovation activities: host country inclination towards the firm's home country and the firm's political capabilities, respectively. We thus examine how IPR policies and non-market factors interact in protecting firm innovation from misappropriation and in making countries more attractive for innovation-related activities. We find support for our predictions in a sample of 1,341 foreign R&D investments made by 163 firms from 14 home countries over the period 2003–2016.