Technology licensing is an important form of exchange in business-to-business markets. Licensees consider licensing technologies as a key mechanism to expand their technological asset base and to innovate. Even though exchange is the central focus of marketing academia, technology licensing contracts as a form of exchange have been largely overlooked. We take some steps to fill this void by studying the role of governance in licensing contracts. We rely on governance and specifically agency theory to study two-sided moral hazard problems in technology licensing. The two-sided nature of the problem is reflected in the presence of both upstream monitoring (i.e., the licensee monitoring the licensor) and downstream monitoring (i.e., the licensee being monitored by the licensor). We demonstrate that the effects of monitoring on licensee value creation are conditional on the licensee's experience in licensing. Specifically, we observe that, conditional on the licensee having accumulated a high level of licensing experience, upstream process monitoring and downstream output monitoring increase licensee market value while downstream process monitoring reduces licensee market value. Interestingly, we find no support for similar moderating effects of partner-specific experience. We rely on a unique database of original licensing contracts, historical data on past licensing contracts, and stock price data to analyze the value created by individual licensing contracts. The combined results may help licensees draft more valuable contracts.
All Science Journal Classification (ASJC) codes