Ownership, Compensation and Board Diversity as Innovation Drivers: A Comparison of U.S. and Canadian Firms

45 Pages Posted: 21 May 2020

See all articles by Gamal Atallah

Gamal Atallah

University of Ottawa - Department of Economics

Claudia De Fuentes

affiliation not provided to SSRN

Christine Panasian

Saint Mary's University, Canada - Sobey School of Business

Date Written: March 2020

Abstract

Using a large sample of North American firms, from 1999 to 2016, we investigate the effect of corporate governance structures, specifically ownership, board characteristics, and executive compensation contracts on innovation intensity and output. We consider both R&D expenditures and patents as innovation proxies and evaluate consequences of the economic downturns of 2000 and 2008. We find that R&D investment increases with ownership by institutional blockholders and with the number of institutional owners, confirming the key role institutions play in innovation activities of firms. We observe higher R&D levels for firms with more independent boards, more females board members and more outside directorships held by directors. We report that firms with CEO/chair of the board duality have lower R&D intensity, as do firms with higher ownership by directors and with a higher mean board age. Innovation is negatively related to CEO salary levels, but positively related to the ratio of incentives to total compensation, confirming that incentives contribute to aligning shareholders and management interests, which leads to better long-term decisions. However, those incentives reduce the number of patents. We do not find any systematic changes in R&D for the 2000 recession, however there is an increase for the 2008 financial crisis.

Keywords: Corporate Governance, Corporate Finance and Governance, Innovation, R&D Investment, Canada, United States

JEL Classification: G34, O16, O31

Suggested Citation

Atallah, Gamal and De Fuentes, Claudia and Panasian, Christine, Ownership, Compensation and Board Diversity as Innovation Drivers: A Comparison of U.S. and Canadian Firms (March 2020). Available at SSRN: https://ssrn.com/abstract=3584949 or http://dx.doi.org/10.2139/ssrn.3584949

Gamal Atallah (Contact Author)

University of Ottawa - Department of Economics ( email )

P.O. Box 450, STN. A
Ottawa, Ontario K1N 6N5
Canada
613-562-5800, x1695 (Phone)
613-562-5999 (Fax)

Claudia De Fuentes

affiliation not provided to SSRN

Christine Panasian

Saint Mary's University, Canada - Sobey School of Business ( email )

Sobey Building 311
923 Robie Street
Halifax, Nova Scotia B3H 3C3
Canada

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