Governance and innovation

I examine the relation between the presence of governance provisions and corporate innovation for a sample of firms between 1984 and 1997. I find a positive relation between four proxies for innovation and the broad Gompers, Ishii, and Metrick (2003) Index. However, in subsample analyses, I find that only those provisions that officers and directors actively adopt are positively related to innovation; coverage by state-level antitakeover legislation is typically unassociated or negatively associated with innovation. The evidence suggests that it is the visibility of officers and directors' actions rather than the potency of the takeover protection that best explains the observed pattern.