A successful start-up firm makes two important strategic choices during its early life. It must decide upon a "technology strategy" — whether to specialize or generalize in the allocation of its research and development efforts — and a "commercialization strategy" — whether to cooperate or compete with incumbents to secure the investment it will need to commercialize its inventions. In this paper, I advance an economic theory that links these two decisions. I then test the theory using the introduction of the 2002 Sarbanes-Oxley Act (SOX) as a shock to firms’ commercialization strategies. My evidence suggests that successful start-up firms altered their technology strategies to favor component specialization following the introduction of SOX. An important ramification of this paper is therefore that entrepreneurship/corporate policy and innovation policy can affect one another in unexpected ways.
