Ownership, Compensation and Board Diversity as Innovation Drivers: A Comparison of U.S. And Canadian Firms

Abstract

Using a large sample of North American firms, from 1999 to 2016, we investigate the effect of corporate governance structures, specifically ownership, board characteristics, and executive compensation contracts on innovation intensity and output. We consider both R[Formula: see text]D expenditures and patents as innovation proxies and evaluate consequences of the economic downturns of 2000 and 2008. We find that R[Formula: see text]D investment increases with ownership by institutional blockholders and with the number of institutional owners, confirming the key role institutions play in innovation activities of firms. We observe higher R[Formula: see text]D levels for firms with more independent boards, more females board members and more outside directorships held by directors. We report that firms with CEO/chair of the board duality have lower R[Formula: see text]D intensity, as do firms with higher ownership by directors and with a higher mean board age. Innovation is negatively related to CEO salary levels, but positively related to the ratio of incentives to total compensation, confirming that incentives contribute to aligning shareholders and management interests, which leads to better long-term decisions. However, those incentives reduce the number of patents. We do not find any systematic changes in R[Formula: see text]D for the 2000 recession, however there is an increase for the 2008 financial crisis.

Female directors and corporate innovation in family firms in India. Do leverage ratios and mandatory CSR expenditure matter?

“…However, a further study showed that female directors in monitoring capacity contribute better to R&D outcomes than those in an advisory capacity (Chen et al, 2021). It also argued in a North American firm's study that R&D expenditure increased when there were more female members and outside directors on the board (Atallah et al, 2021). The dominance of India as a male-dominated society (Chauhan and Dey, 2017) allows this study to replicate a similar study in India.…”

“…Even though different authors have examined innovation and performance, the indicators that cause an increase in innovation have limited studies. Among the identified studies include a study that argued that R&D expenditure increased when more female members and outside directors were on the board (Atallah et al , 2021). Similarly, it is observed that female directors influence innovation performance.…”

“…Previous studies have examined gender diversity and innovation (D’Amato, 2017; Atallah et al , 2021; Chen et al , 2021). A few other studies also examined the family effect (Cumming and Leung, 2021), creating a research link between gender diversity and innovation.…”

Microfoundations of innovation: A dynamic CEO capabilities perspective

“…Last, institutional ownership was included in the model. Although research has yet to produce conclusive evidence on whether institutional ownership hinders or facilitates innovation, its significance for innovation is undisputed (Atallah et al, 2021; Brossard et al, 2013).…”

Can talent policy promote firm innovation: An empirical analysis from solar photovoltaic industry in China

“…While R&D expenditures only capture observable innovation inputs, patenting activity reflects the successful outputs after it has invested all observable and unobservable innovation inputs. Additionally, patenting activity may be regarded as a measure of innovation efficiency (Atallah et al, 2021), and patents were closely related to development of new products that show a commercial value and were also externally validate innovation outcomes (Chen et al, 2016). Moreover, the application of patents can produce short-term profitability and can be expected to bring more persistent future benefits (Fitzgerald et al, 2021).…”