Corporate governance practices and companies' R&D intensity: Evidence from European countries

This paper empirically investigates whether corporate governance practices implemented to align shareholders' and managers' interests affect the resources firms devote to R&D. Two databases - one on governance ratings and one on R&D investment - are merged to obtain a multi-country, multi-sector sample of 177 European companies involved in R&D activities. The results suggest that limitations of anti-takeover devices and voting rights restrictions, a financial performance-based remuneration system for managers and a higher shareholders' consensus at the annual general assembly are all negatively correlated with R&D intensity. In other words, governance practices that are designed to respond to the short-term expectations of financial markets might prove to be detrimental to long-term R&D investments.