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The Effects of Corporate Governance on the Relationship between Innovative Efforts and Performance

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  • Johnny Jermias

Abstract

The purpose of this study is to examine the effects of managerial share ownership, CEO duality and board independence on the relationship between innovative efforts and performance. The study is motivated by the observation that despite the widely held belief that innovative efforts are crucial to firms' survival, previous studies were unable to provide any evidence in support of this belief. It addresses this incongruity by focusing on the effects of corporate governance on the relationship between innovative efforts and performance. Specifically, this study predicts and finds that managerial share ownership has a positive effect on this relationship while CEO duality has a negative effect. Contrary to the hypothesis, this study finds that board independence also has a negative effect on the relationship between innovative efforts and performance. This contradictory result is, however, consistent with the managerial-incentive theory, which proposes that inside directors are in a better position than outside directors to motivate managers to undertake profitable projects because they have superior access to firms' specific information.

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  • Johnny Jermias, 2007. "The Effects of Corporate Governance on the Relationship between Innovative Efforts and Performance," European Accounting Review, Taylor & Francis Journals, vol. 16(4), pages 827-854.
    • Handle: RePEc:taf:euract:v:16:y:2007:i:4:p:827-854
    DOI: 10.1080/09638180701707045
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    2. Eleftherios Soleas, 2021. "Environmental factors impacting the motivation to innovate: a systematic review," Journal of Innovation and Entrepreneurship, Springer, vol. 10(1), pages 1-18, December.
    3. Nourhene BLIBECH & Sarra Berraies, 2018. "The impact of CEO' duality and board's size and independence on firms’ innovation and financial performance," E3 Journal of Business Management and Economics., E3 Journals, vol. 9(1), pages 022-029.
    4. Geeta Duppati & Albert Sune & Navajyoti Samanta, 2017. "Corporate governance, research and development volatility and firm performance - Evidence from Spain and Ireland," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1317117-131, January.
    5. Eleftherios K. Soleas, 2020. "Leader strategies for motivating innovation in individuals: a systematic review," Journal of Innovation and Entrepreneurship, Springer, vol. 9(1), pages 1-28, December.
    6. Saha Rupjyoti & Kabra Kailash Chandra, 2019. "Does corporate governance influence firm performance? Evidence from India," Economics and Business Review, Sciendo, vol. 5(4), pages 70-89, December.
    7. Liu, Baohua & Sun, Pei-Yu & Zeng, Yongliang, 2020. "Employee-related corporate social responsibilities and corporate innovation: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 357-372.
    8. Lasuli Bakalikwira & Juma Bananuka & Twaha Kaawaase Kigongo & Doreen Musimenta & Veronica Mukyala, 2017. "Accountability in the public health care systems: A developing economy perspective," Cogent Business & Management, Taylor & Francis Journals, vol. 4(1), pages 1334995-133, January.
    9. Stefanescu Cristina Alexandra, 2011. "Do Corporate Governance “Actors”’ Features Affect Banks’ Value? – Evidence From Romania," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 6(2), pages 136-150, August.
    10. Jermias, Johnny & Gani, Lindawati, 2014. "The impact of board capital and board characteristics on firm performance," The British Accounting Review, Elsevier, vol. 46(2), pages 135-153.
    11. Pavlopoulos, Athanasios & Magnis, Chris & Iatridis, George Emmanuel, 2019. "Integrated reporting: An accounting disclosure tool for high quality financial reporting," Research in International Business and Finance, Elsevier, vol. 49(C), pages 13-40.
    12. María Consuelo Pucheta-Martínez & Isabel Gallego-Álvarez, 2020. "Do board characteristics drive firm performance? An international perspective," Review of Managerial Science, Springer, vol. 14(6), pages 1251-1297, December.
    13. Abdalla Shwairef & Azlan Amran & Mohammad Iranmanesh & Noor Hazlina Ahmad, 2021. "The mediating effect of strategic posture on corporate governance and environmental reporting," Review of Managerial Science, Springer, vol. 15(2), pages 349-378, February.
    14. Malikov, Kamran & Demirbag, Mehmet & Kuvandikov, Azimjon & Manson, Stuart, 2021. "Workforce reductions and post-merger operating performance: The role of corporate governance," Journal of Business Research, Elsevier, vol. 122(C), pages 109-120.
    15. Dunk, Alan S., 2011. "Product innovation, budgetary control, and the financial performance of firms," The British Accounting Review, Elsevier, vol. 43(2), pages 102-111.
    16. Taiming Chen & Xi Chen, 2023. "The Role of Digital Transformation in the Relationship between Industrial Policies and Technological Innovation Performance: Evidence from the Listed Wind Power Enterprises in China," Sustainability, MDPI, vol. 15(7), pages 1-19, March.
    17. Isabel‐María García‐Sánchez & Isabel Gallego‐Álvarez & José‐Luis Zafra‐Gómez, 2021. "Do independent, female and specialist directors promote eco‐innovation and eco‐design in agri‐food firms?," Business Strategy and the Environment, Wiley Blackwell, vol. 30(2), pages 1136-1152, February.
    18. Arul Jothi Km & Ahmed Mohammed Kamaruddeen & Kuan Tian Ying, 2014. "Process Innovation and the Financial Performance of Malaysian Food Processing Company," International Journal of Management Sciences, Research Academy of Social Sciences, vol. 4(10), pages 413-420.
    19. Cedomir Ljubojevic & Gordana Ljubojevic & Nina Maksimovic, 2013. "Corporate Governance and Competitive Capability in Serbian Companies," MIC 2013: Industry, Science and Policy Makers for Sustainable Future; Proceedings of the 14th International Conference, Koper, 21–23 November 2013 [Selected Papers],, University of Primorska, Faculty of Management Koper.

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