Rapid change is part of the new competitive landscape, and firms are turning to innovation for new value creation (Bettis and Hitt, 1995). One way that firms attempt to innovate is through R&D activity. R&D intensity has been shown to be positively related to innovation (Kim and Marschke, 2004), but there is unexplained heterogeneity in number of innovations among similar firms with comparable R&D expenses. I explore employee stock ownership as a moderator on the relationship between R&D intensity and innovations produced.

As employees’ ownership share in a firm increases, their commitment to the firm increases such that they are more likely to direct their innovative efforts within the organization, as opposed to pursuing external entrepreneurial opportunities. I hypothesize that employee stock ownership moderates the positive relationship between R&D intensity and innovations produced: when employee stock ownership is high, the relationship will be more positive than when it is low.