Good governance practices and technological innovation intensity within companies

Abstract

This study examines the effect of company good governance good on the level of innovation of innovating companies. Under the prism of the literature on innovation and business theories (resource and skills theory, transaction cost theory, agency theory and stakeholder theory), we made the hypotheses to empirically test. The data used consists of 1404 observations of 156 European listed companies who carried out expenditures of R & D at least once during the 2007-2015 period. The data is from the ASSET4-ESG database. After analysing the data using a random effects panel data regression technique (GLS), we find a negative and significant relationship between the aggregate index of company governance and the level of innovation. However, a deeper analysis by breaking up the aggregate index of governance into sub-indices reveals that the sub-indices related to the engagement of the management, the respect of the rights of shareholders, and the transparency of financial information have an important effect on the propensity to invest in innovating projects in the long run. Also, the same sub-indices related to the characteristics of the Board of directors and the independence of the audit committee do not affect the propensity of a company to invest in innovating activities. These results reflect the consequences of the legal framework of the European Union and those of the countries of origin of companies of the sample after the Sarbanes-Oxley law in the United States.