Board Characteristics, Financial Slack and R&D Investments
02 Jan 2016-International Studies of Management and Organization (Routledge)-Vol. 46, Iss: 1, pp 8-23
TL;DR: In this paper, the authors examined how board characteristics, such as the independent director ratio, board size, and the number of interlocks, influence the investment of slack resources into research and development (R&D) by a firm.
Abstract: :In this study, we examine how board characteristics, such as the independent director ratio, board size, and the number of interlocks, influence the investment of slack resources into research and development (R&D) by a firm. Both the agency theory and resource dependence theory predict a positive influence of independent director ratio on the financial slack-R&D investment relationship. However in the case of board size and number of interlocks, resource dependence theory argues for a positive moderating effect, while agency theory predicts a negative effect. The hypotheses are tested on the seven-year panel data of 172 firms in the Indian pharmaceutical industry, an emerging economy, high technology industry. We find broad support for the resource provisioning role of the board of directors, which is attributed to the emerging economy context of the Indian pharmaceutical industry, where firms face high levels of opportunity but lack resources to make use of them effectively.
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Dissertation•
01 Dec 2017
TL;DR: In this article, the authors studied the slack -performance relationship under different external environments by taking advantage of the financial crisis of 2008-09, which provides a natural experiment opportunity for the study.
Abstract: This thesis studied the slack - performance relationship under different external environments by taking advantage of the financial crisis of 2008-09, which provides a natural experiment opportunity for the study. Besides the management of slack, adaptation profiles are also examined by building the two-stage adaptation process model in concordance with different period of financial crisis. Based on empirical analysis and theoretical research, this thesis finds that slack management impacts the firms' performance as well as firms' adaptation to respond to financial crisis. Another novelty of this thesis is to examine ambidexterity in detail by employing constructs of alignment and adaptability from the perspective of organizational slack. Thesis tries to evidence that European manufacturing firms have various adaptation processes, profiles and risk-taking behaviors with varying performance implications based on their slack management in response to financial crisis. To that end, this study investigates empirically, publicly-held 671 western European manufacturing firms, by comparatively examining their organizational slack management and performance characteristics before, during and after the recent financial crisis period 2007-8 . This research employs longitudinal panel data. The data was drawn from Thomson one banker database for the period of2004-2013.
43 citations
Cites background from "Board Characteristics, Financial Sl..."
...For example, resource investment in exploration activities such as R&D expenditure shows adaptation process development commitments and creates a form of invested slack (Ashwin et al., 2016, Shaikh and Peters, 2014, Tyler and Caner, 2015, Wu and Tu, 2007)....
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...Accordingly, investment in R&D should enable the sufficient adaptation and risk-taking with superior performance outcomes (Ashwin et al., 2016, Lee and Wu, 2015)....
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...Considering 'slack causes agency issues’, agency scholars advocate that excess resources lead to inefficiency in the organization, prevents risktaking initiatives, and damages performance (Cheng and Lin, 2012, Ashwin et al., 2016, Wang et al., 2016b, Jensen, 1986, Jensen and Meckling, 1976)....
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...81 As discussed earlier, excess resources in the organization are considered as agency problems, which leads to organizational incompetence, hinders taking risky initiatives and damages firm performance (Shaikh and Peters, 2014, Ashwin et al., 2016)....
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...104 Agency theory suggests that organizational slack may influence firm performance negatively and greater levels of excess resources lower firm performance81 (Marlin and Geiger, 2015b, Stan et al., 2014, Ashwin et al., 2016)....
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TL;DR: In this paper, the influence of corporate governance variables relating to the board of directors, audit and ownership on the agency problems that inflict a firm's investments in capital and research and development (R&D) expenditures is investigated.
Abstract: The purpose of this paper is to empirically investigate the influence of corporate governance variables relating to the board of directors, audit and ownership on the agency problems that inflict a firm's investments in capital and research and development (R&D) expenditures. This study posits that the R&D investments are inflicted by the agency problem of “quiet life” whereas “empire-building” agency problem affects capital expenditure decisions.,This study analyses the investment behaviour of non-financial and non-utility firms listed on NIFTY 200 from FY 2009 to FY 2018 using a static and dynamic model.,The results from the static model suggest that ownership concentration mitigates the agency problem of the “quiet life” that affects R&D expenditures. However, no corporate governance attribute has a significant impact on R&D investments under the assumption of the dynamic model. In respect of capital expenditures, the analysis of static model yields that audits by large auditor firms and usage of non-audit services ameliorate the agency problem of “empire-building”. The results from the dynamic model show that independent boards worsen it. They also continue to provide empirical evidence in favour of large auditors.,This paper contributes to the literature on the corporate governance-investment association by simultaneously examining the impact of multiple corporate governance attributes on the agency problems of “quiet life” and “empire-building” that affect R&D and capital expenditures, respectively, in a static and dynamic context for a sample of Indian firms.
15 citations
14 citations
TL;DR: The literature on corporate governance has highlighted the importance of board characteristics related to firm innovation as mentioned in this paper, however, empirical findings have not been totally conclusive, and some see some see bias.
12 citations
TL;DR: Results show that innovation is affected positively by board size, especially in the case of family businesses, and gender diversity, particularly in non-family businesses, while results support that independent directors have a negative impact on innovation and such negative influence is even stronger in family firms.
11 citations
Cites background or methods or result from "Board Characteristics, Financial Sl..."
...Firstly, the Agency Theory assumes the self-serving behavior of agents so as to satisfy their own interests above all others (Eisenhardt, 1989; Ashwin et al., 2015, 2016; Blanco-Mazagatos et al., 2016)....
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...Some authors suggest that large board size favors innovation (Zona et al., 2008), mainly on product, process and organizational innovation (Kwon and Shin, 2007), or intensity (Mezghanni, 2008) and investment in R&D (Ashwin et al., 2016)....
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...This finding is in line with some previous studies (Ashwin et al., 2016; Kwon and Shin, 2007; Mezghanni, 2008; Zona et al., 2008) and supports the assumptions of the Agency Theory and the Resource Dependence Theory, that emphasize the richer resources, experiences and skills of larger boards,…...
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