Shareholder orientation, stakeholder orientation, and new product introductions

Abstract

ABSTRACT A dominant stream of research has linked a firm’s innovation capacity to its shareholder orientation, concerning how effectively internal corporate governance mechanisms maximise shareholder wealth and sustain competitive advantages. The main mechanisms involve independent board monitoring and incentives alignment, pertaining to how managers are monitored through shareholders’ surveillance and bonded with compensation structures to adopt risky innovation strategies, respectively. However, firms are mandated to engage with both shareholding and non-shareholding groups such that firms simultaneously pursue shareholder and stakeholder orientation through corporate social performance. Strikingly, extant research has analysed the effects of shareholder and stakeholder orientations on innovation on a separate basis. The present paper integrates multiple corporate orientations to provide a more comprehensive framework of the antecedents of firms’ product innovation. Specifically, the study not only examines the main effects of independent monitoring and incentives alignment, but also the synergistic effect of corporate social performance and the former mechanisms on the rate of new product introductions. Empirical results indicate that corporate social performance alleviates the negative effects of independent monitoring on the rate of new product introductions. In addition, corporate social performance alleviates the negative effects of short-term incentive compensation and the rate of new product introductions. Findings suggest that as businesses are currently required to both use a host of governance mechanisms to resolve agency problems and to enhance competitiveness via new product introductions, a strong stakeholder orientation mitigates the trade-offs that a narrow pursuit of shareholder orientation imposes on firm innovativeness.