Abstract
This study explores the impact of board characteristics and ownership structures on the strategic decisions taken for R&D investment. The study employs a sample comprising 1736 firm-year observations of 434 technological firms listed on the Taiwanese Stock Exchange (TWSE) between 2014 and 2017. Contrary to extant research, the findings reveal that board independence plays a crucial role relative to R&D intensity, as strong evidence reflects a positive and significant relationship thereon. Moreover, the empirical results demonstrate negative and significant relationships between CEO Duality, Board size (in big companies), Executive & Manager, Board of Directors and Top Blockholders; ownership structures, and firm R&D intensity. Interestingly, the ownership structure results emerging from this Taiwanese contextual study support, and are consistent with the predictions of the ‘entrenchment argument’ and are counter to the ‘convergence of interest’ argument. The findings emerging from this research provide an opportunity for further discussion and analysis regarding corporate governance principles and regulations. Firms seeking to optimize their R&D policy imperatives may benefit from such a study.
Highlights
Research and Development (R&D) expenditure relating to innovation and capability development is a consequence attributable to corporate governance considerations such as ownership (Hoskisson et al, 2002) and board characteristics (Kor, 2006)
This study explores the impact of board characteristics and ownership structures on the strategic decisions taken for R&D investment
This study investigates the influence of board characteristics and ownership structures on firm R&D intensity by assessing 1736 firm-year observations of 434 technological firms listed on the Taiwanese Stock Exchange (TWSE) between 2014 and 2017
Summary
R&D expenditure relating to innovation and capability development is a consequence attributable to corporate governance considerations such as ownership (Hoskisson et al, 2002) and board characteristics (Kor, 2006). Ensuing this paradigm, boards exert significant influence on firm strategic imperatives, including financial decision making - R&D being a core component of this reasoning. Agency theory was used to advocate that outside directors positively influence R&D (Kor, 2006) as they are disposed to fulfill a supervisory position on intrinsically risk-averse managers and may circumvent R&D expenditure, which they treat as precarious (Jensen and Meckling, 1976). Contradistinction exists, where agency theory postulates that outside directors impede R&D expenditure by adopting financial controls, a consequence being targeting efficiency and decreasing R&D spending (Baysinger & Hoskisson, 1990). Inside directors, in their quest to circumvent self-interest accusations, are less reluctant to monitoring (Boyd, 1994)
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