Employee disputes and innovation performance: evidence from the pharmaceutical industry

Abstract

Purpose: 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. Design/methodology/approach: 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. Findings: 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. Research limitations/implications: While the study provides novel insights into the relationship between employee litigation and innovation in the pharmaceutical industry, the findings are contingent upon the accuracy of the dataset and may not be universally applicable across all sectors. Practical implications: 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. Originality/value: This research contributes to the literature by offering empirical evidence on the detrimental effects of employee litigation on firms’ ability to innovate, particularly in the highly regulated pharmaceutical industry. It highlights the significance of workplace relations in influencing a firm’s innovation outcomes.