Experience and signaling value in technology licensing contract payment structures

• Main Authors: KOTHA, Reddi, CRAMA, Pascale, KIM, Phillip H.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Operations and Supply Chain Management; Strategic Management Policy; Technology and Innovation
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6024; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7023/viewcontent/amj.2015.1233.pdf
• Institution: Singapore Management University

Whencommercializing technology, the lack of proven results and a reluctance toinvest upfront resources hamper efforts by firms to work jointly with inventorsto bring new discoveries to market. An effective contract payment structure – amix of upfront and royalty payments – can help overcome these hurdles. Weconduct our research in university technology licensing, where licensingmanagers act as intermediaries to unite inventors and licensee firms. Rather than leveraging their experience to bargainfor maximum payments, highly experienced managers offer contractual paymentstructures that trade lower upfront payments for higher royalty payments inorder to signal value. The signal instills confidence in the value of the partnership forskeptical licensee firms, and experienced licensingmanagers can amplify signals as needed to overcome the uncertainties inherentin technology commercialization. By explicitly addressing these variationsin signal strength, we develop new theory that builds on classical signalingprinciples. We test and confirm these predictions in a sample of over 950 invention-licensingcontracts. In addition to advancing signaling theory, our work has implicationsfor academic entrepreneurship, and for how experience shapes value-sharingagreements in collaborative innovations.