Mediation or Moderation? The Role of R&D Investment in the Relationship between Corporate Governance and Firm Performance: Empirical Evidence from the Chinese IT Industry
Abstract:Manuscript Type: EmpiricalResearch Question/Issue: This paper explores whether R&D investment has a mediating and/or moderating effect on the relationship between corporate governance and firm performance. Research Findings/Insights: This empirical study of Chinese IT-industry listed companies during the 2007-2008 period shows that R&D investment does not moderate, but instead mediates the relationship between corporate governance and firm performance. Theoretical/Academic Implications: This paper takes the pe… Show more
“…However, studies carried out by Cowling [25] and Hottenrott et al [26] show that RDFS positively influence R&D investment, which can significantly increase the R&D output of SMEs. In this context, we put forward the hypothesis 6 and the testing results proved that RRDI indeed mediates the relationship between RDFS and the sustainable patent output of SMEs, which is similar to Zhang et al [50], who suggested that R&D investment mediated the relationship between corporate governance and firm performance.…”
The effects of regional R&D input (RRDI) and intensity of intellectual property protection (IPP) on the relationship between R&D financial subsidies (RDFS) and the sustainable patent output of small and medium enterprises (SMEs) is currently a topic of debate. Regional financial support and necessary IPP are vital to the sustainable patent output of SMEs. However, empirical evidence to investigate the role of RRDI and intensity of IPP is insufficient. Therefore, this study aims to reveal the effect of RDFS on the sustainable patent output of SMEs and analyze the role of RRDI and intensity of IPP in the relationship between RDFS and SMEs’ sustainable patent output. We collected data from the R&D activities of SMEs in 30 provinces of China and performed maximum likelihood estimation (MLE) of six equations. The empirical results show that RDFS have a positive impact on the sustainable patent output of SMEs. Besides, RRDI plays a mediating role in the relationship between RDFS and the sustainable patent output of SMEs. Third, the mediating role of regional R&D personnel input (RRDPI) is more obvious than that of R&D fund input (RRDFI). Finally, the intensity of IPP significantly moderates the direct effect of RDFS on the sustainable patent output of SMEs and the mediation effect via RRDI.
“…However, studies carried out by Cowling [25] and Hottenrott et al [26] show that RDFS positively influence R&D investment, which can significantly increase the R&D output of SMEs. In this context, we put forward the hypothesis 6 and the testing results proved that RRDI indeed mediates the relationship between RDFS and the sustainable patent output of SMEs, which is similar to Zhang et al [50], who suggested that R&D investment mediated the relationship between corporate governance and firm performance.…”
The effects of regional R&D input (RRDI) and intensity of intellectual property protection (IPP) on the relationship between R&D financial subsidies (RDFS) and the sustainable patent output of small and medium enterprises (SMEs) is currently a topic of debate. Regional financial support and necessary IPP are vital to the sustainable patent output of SMEs. However, empirical evidence to investigate the role of RRDI and intensity of IPP is insufficient. Therefore, this study aims to reveal the effect of RDFS on the sustainable patent output of SMEs and analyze the role of RRDI and intensity of IPP in the relationship between RDFS and SMEs’ sustainable patent output. We collected data from the R&D activities of SMEs in 30 provinces of China and performed maximum likelihood estimation (MLE) of six equations. The empirical results show that RDFS have a positive impact on the sustainable patent output of SMEs. Besides, RRDI plays a mediating role in the relationship between RDFS and the sustainable patent output of SMEs. Third, the mediating role of regional R&D personnel input (RRDPI) is more obvious than that of R&D fund input (RRDFI). Finally, the intensity of IPP significantly moderates the direct effect of RDFS on the sustainable patent output of SMEs and the mediation effect via RRDI.
“…5 Table 1 also reports the descriptive statistics of the various variables used in our regressions. Our set of control variables consists of the well-known determinants of innovation, including return on assets (ROA), Tobin's Q, CEO tenure, capital expenditure ratio, tangibility, financial constraints (Kaplan and Zingales, 1997), institutional ownership (Choi, Park and Hong, 2012), leverage (Zhang, Chen and Feng, 2014), total assets and financial analysts' coverage (He and Tian, 2013). A detailed definition of these variables is provided in the Appendix and their correlation matrix is reported in Table 2.…”
Section: Data and Descriptive Statisticsmentioning
This study examines the effects of CEO equity‐based compensation and anti‐takeover provisions on corporate innovation. Using a large sample of US firms over the period 1996–2014, we find that long‐term incentives have a stronger influence on innovation when combined with takeover threats. We also show that equity‐based compensation is more likely to spur innovation for small firms and firms in industries with high product market competition and innovation pressure. However, this effect is somewhat weaker in the presence of anti‐takeover provisions, suggesting that takeover protection encourages managerial shirking even when external competition is high. Finally, in addition to the existing evidence on the valuation effect of CEO equity‐based compensation, we identify innovation as an important channel through which managerial incentives can enhance firm value. Our results have potential implications for shareholders, managers and policymakers.
“…At first we considered the time lag effect of R&D investments on financial performance. As documented by Parcharidis and Varsakelis (2010), Mezghanni (2011) and Zhang et al (2014), R&D investments are long-term projects and so they take time to prosper and produce positive results on corporate performance and profitability. Thus, following the above mentioned studies both models were re-estimated using 1 and 2 year lags of the R&D investments and expenses variables.…”
Innovation and Research and Development (R&D) investments have been considered in the literature as a significant determinant of corporate development and sustainability. Previous studies have examined the impact of intangibles on financial performance but not extensively within economic environments of intense financial turmoil. The scope of this study is to shed further light on this issue and examine whether R&D investments had an impact on the profitability of Greek firms especially during the sovereign debt crisis. We collected a sample of Greek corporations that have capitalized their R&D investments and paid significant amounts on R&D expenses during the period 2003-2016. Panel regression results indicated that R&D investments and R&D expenses had a negative impact on the profitability of sample firms before the crisis, but during the crisis (2011-2016) firms which managed to sustain or enhance their level of R&D investments achieved to improve their profitability. These findings corroborate our hypotheses that during a period of limited lending and hearse financial turmoil, R&D investments could be a vital tool for sustaining firms' financial performance. The study offers useful implications for managers and regulators, and contributes to the ongoing debate about the impact of R&D investments on corporate performance.
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