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Board structure and corporate R&D intensity: evidence from Forbes global 2000

Aws AlHares · Ahmed A. Elamer · Ibrahem Alshbili · Maha W. Moustafa

59 citations0/0 files storedInternational Journal of Accounting and Information Management

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Corporate Finance and Governance Auditing, Earnings Management, Governance Corporate Governance and Financial Management

Abstract

Purpose This study aims to examine the impact of board structure on risk-taking measured by research and development (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 uses the ordinary least square multiple regression analysis techniques 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 Future research could investigate risk-taking using different arrangements, conducting face-to-face meetings with the firm’s directors and shareholders. Practical implications The results suggest that better-governed firms at the firm- or national-level have a high expectancy of less risk-taking. These results offer regulators a resilient incentive to pursue corporate governance (CG) 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. Finally, the findings offer investors the opportunity to build specific expectations about risk-taking behaviour in terms of R&D intensity in OECD countries. Originality/value This study extends and 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.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 1996Higher market valuation of companies with a small board of directors 2008The Economic Consequences of Legal Origins 2012Endogeneity and the dynamics of internal corporate governance 1992A Modest Proposal for Improved Corporate Governance 1998Larger board size and decreasing firm value in small firms 2003Corporate Governance: Decades of Dialogue and Data

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