JOURNAL OF STRATEGIC INNOVATION AND SUSTAINABILITY

How Does Privatization Affect Innovation?

An Integrative Model 

Author(s): Chuanyin Xie

Citation: Chuanyin Xie, (2012) "How Does Privatization Affect Innovation? An Integrative Model," Journal of Strategic Innovation and Sustainability, Vol. 8, Iss. 2, p. 80 - 93

Article Type: Research paper

Publisher: North American Business Press

Abstract:

Privatization leads to private ownership. From an economic perspective, private ownership can motivate

owner-managers to pursue innovation which is important for post-privatization performance. However,

empirical studies do not always support the positive relationship between privatization and innovation.

Therefore, the role of privatization in innovation may be more complex than economic theories suggest.

This study attempts to untangle some controversies regarding innovation in privatized firms by

integrating both economic and cognitive perspectives. Innovation needs risk taking behavior, but private

ownership is likely to make owner-managers risk averse. A main reason is that it leads owner-managers

to bear risk. I argue that innovation in privatized firms may depend on the relative strength of economic

motivation and risk bearing, two opposing forces generated by private ownership.