Corporate governance’ impact on research and development

This study examines the effects of legal and investor protection mechanisms on the efficiency of R&D. This study makes two contributions to the literature. First, when a company lists shares in a common law country or one with higher investor protection (i.e., a company has better country-level corporate governance), the R&D investments of companies create more value. Second, companies that issue ADRs generate higher value from their R&D investments than those that do not issue ADRs. For some companies without ADR issues, their R&D investments decrease the market value of the company. The issuance of ADR strengthens the level of supervision, reducing the agency problem and inducing a higher value of their R&D investment. To the best of our knowledge, no previous studies have examined this phenomenon.