Corporate governance practices and companies' R&D orientation: Evidence from European countries

Arbeitspapier

This paper empirically investigates if corporate governance practices affect the resources firms devote to R&D. Two databases - one on governance ratings and the other on R&D intensity - are merged to obtain a multi-country, multi-sector sample of 279 European companies involved in R&D activities. The relationship is found to be negative: a higher governance score correlates with lower R&D intensity. An executive remuneration system that is linked to the firm's financial performance has a particularly strong negative impact on R&D. This confirms the hypothesis that incentive mechanisms lead managers to focus on more predictable and easily measurable short-term activities, ultimately hampering the commitment to innovative projects. Other factors include the equal treatment of shareholders, the absence of anti-takeover devices and severance pay.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bruegel Working Paper ; No. 2011/01

Classification and Topics

• Classification: Wirtschaft ; Innovation and Invention: Processes and Incentives ; Management of Technological Innovation and R&D ; Technological Change: Choices and Consequences; Diffusion Processes ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
• Subject: R&D intensity ; corporate governance ; remuneration ; shareholder rights ; Corporate Governance ; Betriebliche Forschung ; Managervergütung ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Honoré, Florence ; Munari, Federico ; van Pottelsberghe de la Potterie, Bruno
• Event: Veröffentlichung
• (who): Bruegel
• (where): Brussels
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/78010
• Last update: 10.03.2025, 11:43 AM CET