Governance of new product design: The influence of national institutions

This paper builds on institutional economics theory to analyze whether and how the institutional environment shapes the micro-level governance decisions related to innovation activities. Specifically, we suggest that the extent of co-creation with value-chain partners in new product design - a relational form of governance - is influenced by the institutional setting of the focal firm. Empirically, we rely on data on 636 manufacturers in 21 countries. Results from a hierarchical probit regression show that co-creation is more likely for firms that operate in countries with weak rule-of-law and/or atrophic technological infrastructures. We discuss the implications for theory and practice.