Governing innovation: How technology maturity shapes R&D contracts

Firms investing in market-upstream R&D face governance challenges that vary systematically with the stage of technological development. This study examines how technology maturity shapes the design of interfirm R&D contracts, particularly in balancing appropriation and coordination concerns. Drawing on Transaction Cost Economics (TCE) and incomplete contracting theory, we view contracts as inherently incomplete and use the discriminating alignment principle as a lens to investigate which governance mechanisms are most effective at different levels of technology maturity. Leveraging a large-scale, unique dataset of R&D contracts in the semiconductor industry, we apply a correlated topic model (CTM) to systematically analyze and compare contractual mechanisms across multiple levels of technology maturity. We find that appropriation mechanisms are more prominent at low to intermediate maturity levels, where knowledge remains tacit and appropriation concerns are high. Conversely, coordination mechanisms become increasingly critical at intermediate and high maturity levels, where demands related to integration, execution, and commercialization intensify. We also demonstrate that different levels of technology maturity are associated with distinct framings of key contractual elements—such as intellectual property rights and project management clauses. By introducing the technology readiness level (TRL) framework as an empirical lens for studying contract design, this study advances alliance governance and incomplete contracting theory by revealing stage-contingent variation in contractual governance across the innovation process. • Technology maturity systematically shapes the design of interfirm R&D contracts. • We investigated a unique set of R&D contracts using correlated topic modelling. • The extent of appropriation and coordination mechanisms varies across the stages. • But also the framing of key contractual clauses evolves with technology maturity. • Technology Readiness Levels offer a structured basis for explaining stage-contingent governance needs.