Corporate Governance and Innovation Performance: A European Panel Data Study of Firm- and Country-level Factors

Kristian Pal

Student thesis: Master thesis


Despite numerous studies examiningthe relationship between Corporate Governance mechanisms and innovation, an overall consensus hasnotbeenreached. This thesis builds on agency theory and institutional theory to extend the analysis of the potential relationship betweenownership structure and R&D activities. Specifically, the analysis focuses on ownership concentration, owner identity and country-level governanceto consider their influence on R&D intensity. In order to test the suggestedrelationships, a panel data-set of two samples totalling 1321 observations is constructed. A group of highly innovative firms, and a control group of mostly low innovation firms,are selected among the EU28 countries during 2013-2016inclusive.Pooled OLS and Random Effects estimator are used to test the hypothesized relationships.Controlling for industry and firm-level effects, the results for high innovation firms suggesta negative relationship between ownership concentration and R&D intensity.Further, the WIPO index of country-governance ispositively associated with firm-level R&D in this group.However, there is no moderating role of country-governance on ownership structure in either group.In line with expectations, some support is found for the propositions that pressure-resistant institutions are more positively associated with R&D intensity than pressure-sensitive and pressure-indeterminate institutions. Moreover, family ownership is positively related to R&Dintensityand more than government ownership,as proposed. However, testing the same relationships on the control group results in contradictory outcomes. Essentially, no statistically significant associationsbetween firm orcountry governance factorsand R&D intensity are foundforthe control group.Interestingly, the Schumpeterian view, suggesting that smaller firms are the drivers of innovation, is supported in both samples. The resultsof the studyare robust against potential sample selection biasand heteroscedasticity, but not endogeneity.Considering the inconsistent findings and the potential presence of endogeneity, wethereforeconclude that the results of the high innovation sample are only suggestive and may be due to spurious correlations. Nevertheless,the inclusion of country-level factors should be continued in this context,andthe insights can still be useful for policy-makers that supportinitiatives in Europe.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2019
Number of pages111
SupervisorsAleksandra Gregoric