Corporate Governance and Innovation: A Survey
Journal of Economic Surveys, Forthcoming
48 Pages Posted: 3 Apr 2010 Last revised: 29 Jul 2014
Date Written: March 3, 2010
The traditional economics of innovation, inspired by Schumpeter and more recent advances on his work, seem unable to explain why firms with similar external conditions may show greatly different performance in innovation. Contrastingly, the literature on corporate governance provides some useful insights for understanding corporate innovation activity, to the extent that such literature examines the economic effects of different modes of coordination between firm members. The process through which individuals integrate their human and physical resources within the firm is central to the dynamics of corporate innovation. This paper provides the first survey of the literature on this issue. We start by discussing how various theoretical approaches to the analysis of the firm deal with technological innovation. We then describe three main channels – corporate ownership, corporate finance and labor – through which a system of corporate governance shapes a firm’s innovation activity. Finally, we examine the relationship between country-level institutional settings, national patterns of corporate governance and the aggregate innovation activity of corporations. We conclude by suggesting that future research should focus more deeply on the interrelation between the various dimensions of corporate governance and on their joint effect on firm innovation.
Keywords: corporate governance, innovation, incomplete contracts, specific investments
JEL Classification: D23, G30, 016, 031
Suggested Citation: Suggested Citation