Employee Disputes and Innovation Performance: Evidence from the Pharmaceutical Industry

Abstract

This study aims to explore the impact of employee litigation on the innovation output of firms, specifically within the pharmaceutical sector, by examining the relationship between employee lawsuits and Food and Drug Administration (FDA) product approvals. Utilizing a hand-collected dataset comprising 2,293 employee disputes, this research conducts an empirical analysis to test how litigation involving employees influences the rate of FDA approvals for new pharmaceutical products. The analysis reveals that employee disputes are negatively associated with the number of FDA-approved products, indicating that firms facing frequent employee allegations tend to exhibit lower innovation outcomes. Further, the study identifies case characteristics, such as the involvement of labor unions and the duration of cases, as significant determinants that delay the FDA approval process, thereby adversely affecting innovation performance. The results underscore the critical importance of maintaining a positive workplace environment and treating employees fairly to foster innovation performance. Firms are encouraged to adopt strategies that mitigate the risk of litigation to enhance their innovation capabilities.