Privatisation has been one of the defining economic developments of the last two decades in several manufacturing and service industries in both industrialised and developing countries. This paper reviews a number of theoretical and empirical studies linking privatisation processes to innovation activities at the firm level. First, it refers to the literature on corporate governance structures and innovation in order to analyse the theoretical relationship between changes in the principal-agent structure of firms following privatisation, incentives to invest in R&D and R&D performance. It then reviews a number of empirical studies that have analysed this issue in the context of Western Europe.
