Employee Disputes and Innovation Performance: Evidence from the Pharmaceutical Industry

Abstract

In this study, we use a hand-collected dataset of employee lawsuits to understand the effect of employee litigation on firms’ innovation output. We gather more than 2,293 employee disputes between 2000 and 2015 and test the relationship between employee lawsuits and the Food and Drug Administration (FDA) product approvals in the pharmaceutical industry. We find that employee disputes lower the total number of FDA-approved products. We document that firms with frequent employee allegations maintain low innovation outcomes. Additional results show that case characteristics are an important determinant of FDA approvals. For example, the involvement of labor unions and case duration delay time-to-approval of submitted products may explain the deteriorated innovation outcomes. Overall, our findings highlight the importance of employee treatment in the workplace environment, which is ultimately related to firms’ innovation performance.