Corporate governance practices and companies’ R&D orientation: Evidence from European countries

Summary:
This working paper empirically investigates if corporate governance practices affect the resources firms devote to R&D. The authors Florence Honoré, Federico Munari and Bruno van Pottelsberghe found that an executive remuneration system that is linked to the firm’s financial performance has a particularly strong negative impact on R&D. This confirms the hypothesis that incentive mechanisms lead managers to focus on more predictable and easily measurable short-term activities,ultimately hampering the commitment to innovative projects.

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