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Influence of Director Expertise on Capital Structure and Cash Holdings in High-Tech Firms

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  • Rama Iyer, Subramanian
  • Sankaran, Harikumar
  • Walsh, Steve T.

Abstract

Many “High-Tech” firms enjoy high market valuations despite negative earnings and low cash flows due in part to what many see as future bountiful earnings and cash flows, which is a cause for concern. How can corporate governance help? Do well-informed boards assist corporate success through better governance through their influence on financial policy: Capital Structure and Cash Holdings? We test these effects in “High-Tech firms” by segmenting firms into four levels based on technology intensity. We examine differences in board composition and the resultant influence on capital structure. Our fourteen-year sample period includes post-dotcom bubble years and post-Sarbanes-Oxley, which mandated the inclusion of financial experts on corporate boards. We defined two types of firm designated well-informed boards as a result of this analysis. We contribute to the literature in many ways. Using regression analysis and graph theory techniques, we found the educational makeup of high-tech firms to be significantly different from low-tech firms and that they approached capital structure with caution. Low-tech firms rely on board member network connectivity and agency theory's explicative powers.

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  • Rama Iyer, Subramanian & Sankaran, Harikumar & Walsh, Steve T., 2020. "Influence of Director Expertise on Capital Structure and Cash Holdings in High-Tech Firms," Technological Forecasting and Social Change, Elsevier, vol. 158(C).
    • Handle: RePEc:eee:tefoso:v:158:y:2020:i:c:s0040162518320493
    DOI: 10.1016/j.techfore.2020.120060
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    Keywords

    Board of Directors; Network Centrality; R&D;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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