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

39 Pages Posted: 27 Aug 2007

See all articles by Johnny Jermias

Johnny Jermias

Simon Fraser University (SFU) - Beedie School of Business

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.

Keywords: Corporate governance, innovative efforts, performance

JEL Classification: D21, G32, G34, L1, M40, M41, M46

Suggested Citation

Jermias, Johnny, The Effects of Corporate Governance on the Relationship Between Innovative Efforts and Performance. European Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1010067

Johnny Jermias (Contact Author)

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada
604-291-4257 (Phone)
604-291-4920 (Fax)

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