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The impact of country-level corporate governance on research and development

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Author Info

  • David Hillier

    (Department of Accounting and Finance, University of Strathclyde, Glasgow, UK)

  • Julio Pindado

    (Department of Business Administration, Universidad de Salamanca, Spain)

  • Valdoceu de Queiroz

    (National Treasury Secretariat, Ministry of Finance of Brazil)

  • Chabela de la Torre

    (Department of Business Administration, Universidad de Salamanca, Spain)

Abstract

We investigate the process through which country-level corporate governance facilitates firm-level investment in research and development (R&D). Taking cash flow as one of the main determinants of R&D, we derive an econometric model that introduces a number of corporate governance factors (legal protection, financial system, and control mechanisms) to analyze their impact on R&D-cash flow sensitivity. Using data from nine European Union countries, Japan, and the United States, we show that R&D at the firm level is less sensitive to internal cash flow in countries with effective investor protection, developed financial systems, and strong corporate control mechanisms. Specifically, our analysis suggests that the characteristics of the corporate governance system that facilitate R&D are a common law legal environment, minority shareholder protection, strong law enforcement, a bank-based financial system, effective board control, and a strong market for corporate control. This evidence points to corporate governance as a key element in R&D investment, and contributes to the debate on whether country-level corporate governance systems can facilitate R&D projects and, indirectly, promote economic growth.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

Volume (Year): 42 (2011)
Issue (Month): 1 (January)
Pages: 76-98

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Handle: RePEc:pal:jintbs:v:42:y:2011:i:1:p:76-98

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References

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Cited by:
  1. Munisi, Gibson & Randøy, Trond, 2013. "Corporate governance and company performance across Sub-Saharan African countries," Journal of Economics and Business, Elsevier, vol. 70(C), pages 92-110.
  2. García-Sánchez, Isabel-María & Rodríguez-Ariza, Lázaro & Frías-Aceituno, José-Valeriano, 2013. "The cultural system and integrated reporting," International Business Review, Elsevier, vol. 22(5), pages 828-838.
  3. Yunshi Liu & Linda Wang & Li Zhao & David Ahlstrom, 2013. "Board turnover in Taiwan’s public firms: An empirical study," Asia Pacific Journal of Management, Springer, vol. 30(4), pages 1059-1086, December.
  4. Bettina Becker, 2013. "The Determinants of R&D Investment: A Survey of the Empirical Research," Discussion Paper Series 2013_09, Department of Economics, Loughborough University, revised Sep 2013.

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