Market Concentration, Corporate Governance and Innovation: Partial and Combined Effects in US-Listed Firms
AbstractExisting research on the relationship between market concentration and innovation has produced conflicting findings. In addition, the emerging literature on the relationship between corporate governance and innovation tends to focus only on partial effects of corporate governance on innovation. We aim to contribute to the debate by investigating both partial and combined effects of corporate governance and market concentration on innovation. Utilising a dataset for 1,400 non-financial US-listed companies and two-way cluster-robust estimation methodology, we report several findings. First, the relationship between market concentration and innovation is non-linear. Secondly, the relationship has a U-shape in the case of input measure of innovation (research and development - R&D – expenditures); but it has an inverted-U shape when net book-value of brands and patents is used as output measure of innovation. Third, corporate governance indicators such as anti-takeover defences and insider control tend to have a negative partial effect on R&D expenditures but a positive partial effect on net book-value of brands and patents. Finally, when interacted with market concentration, anti-takeover defences and insider control act as complements to market concentration. Hence, firms with strong anti-take-over defences and under insider control tend to spend more on R&D but are less able to generate valuable brands and patents as market concentration increases. These results are based on two-way cluster-robust estimation, which takes account of both serial and cross-sectional dependence in the error terms.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 44135.
Date of creation: Sep 2012
Date of revision: Sep 2012
Publication status: Published in Journal of Governance and Regulation Issue 3.Volume(2012): pp. 199-215
Innovation; competition; corporate governance; two-way cluster-robust estimation;
Find related papers by JEL classification:
- D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
- G3 - Financial Economics - - Corporate Finance and Governance
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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