Board Structure and Corporate R&D Intensity: Evidence from Forbes Global 2000

Abstract

Purpose – This study seeks to examine the impact of board structure on risk-taking measured by R&D intensity in OECD countries.

Design/methodology/approach – The study uses a panel data of 200 companies on Forbes Global 2000 over the 2010- 2014 period. It employs the ordinary least square multiple regression analysis technique to examine the hypotheses.

Findings – The results show that the frequency of board meetings and board size are significantly and negatively related to risk-taking measured by R&D intensity, with a greater significance among Anglo American countries than among Continental European countries. The rationale for this is that the legal and accounting systems in the Anglo-American countries have greater protection through greater emphasis on compliance and disclosure and therefore allowing for less risk-taking.

Research limitations/ implications – The results suggest that better-governed firms at firm- or national-level have a high expectancy of less risk-taking. These results offer regulators a resilient incentive to pursue corporate governance and disclosure reforms officially and mutually with national-level governance. Thus, these results show the monitoring and legitimacy benefits of governance, resulting in less risk-taking. Lastly, the findings offer investors the opportunity to build specific expectations about risk-taking behavior in terms of R&D intensity in OECD countries. Future research could investigate risk-taking using different arrangement, conducting face-to-face meetings with the firm’s directors and shareholders.

Originality/value – This study extends, as well as contributes to the extant CG literature, by offering new evidence on the effect of board structure on risk-taking. The findings will help policymakers in different countries in estimating the sufficiency of the available CG reforms to prevent management mishandle and disgrace.

Keywords: R&D; Corporate Governance; OECD Countries; Frequency of Board Meetings; Board Size; Forbes

JEL Classification: M40