Corporate Governance Reforms and Innovation

Abstract

In this study, we investigate the effect of corporate governance reforms on corporate innovation by constructing a comprehensive firm-level panel dataset across 58 countries from 2000 to 2015. We find that both the quantity and quality of innovation decrease after the initiation of the reforms. Affected firms also conduct less innovation that explores new knowledge versus that exploits existing knowledge. The effect is more pronounced for firms operating in more competitive industries or with higher operational uncertainty. The results suggest that corporate governance reforms may induce managerial myopia and mitigate long-term investment in risky innovation.

Keywords: Board Reform, Corporate Innovation, Managerial Myopia

JEL Classification: G18, G34, O31