Board Capital, CEO Power and R&D Investment in Electronics Firms. (10th July 2014)

• Record Type: Journal Article
• Authors: Chen, Hsiang‐Lan
• Is Part Of: Corporate governance. Volume 22:Number 5(2014:Sep.)
• Page Start: 422
• Page End: 436
• Publication Date: 2014-07-10
• Subjects: Corporate governance -- Periodicals; 658.1145
• DOI: 10.1111/corg.12076
• Languages: English
• ISSNs: 0964-8410

Abstract

<abstract abstract-type="main"> <title>Abstract</title> <sec id="corg12076-sec-0001" sec-type="section"> <title>Manuscript Type</title> <p>Empirical</p> </sec> <sec id="corg12076-sec-0002" sec-type="section"> <title>Research Question/Issue</title> <p>Building on resource dependence theory, this paper examines the effect of board capital and the moderating effect of CEO power on R&D investment.</p> </sec> <sec id="corg12076-sec-0003" sec-type="section"> <title>Research Findings/Insights</title> <p>Based on a panel of electronics firms in Taiwan, the results indicate that board capital (directors' educational level, directors' industry‐specific experience and interlocking directorate ties) has a positive effect on R&D investment and that CEO power positively moderates this effect. The empirical evidence suggests that when powerful CEOs are present, directors with human and social capital will devote more effort to providing valuable strategic advice and resources and thus will support R&D investment to enhance innovative capabilities.</p> </sec> <sec id="corg12076-sec-0004" sec-type="section"> <title>Theoretical/Academic Implications</title> <p>This study contributes to knowledge on corporate governance by bridging the gap in the relationship between board capital and R&D investment via an empirical inquiry into the influence of CEO power on a board's resource provision. The findings suggest that research aiming to elucidate the resource dependence role of board capital in shaping R&D investment should consider the potential moderating role of CEO power. Thus, this study should not only supplement the resource dependence literature by providing a more thorough understanding of the relationship between board capital and R&D investment but also delve into the black box of CEO‐board relations, an important topic within corporate governance research.</p> </sec> <sec id="corg12076-sec-0005" sec-type="section"> <title>Practitioner/Policy Implications</title> <p>This study suggests that when the boards of firms competing in innovation through R&D investment (e.g., electronics firms) search for new board members, they should consider the educational level, industry‐specific experience and interlocking directorate ties of potential directors and how those potential directors complement or reinforce the existing board in order to enhance their ability to obtain valuable strategic information and substantial resources that would facilitate better R&D investment decisions. Additionally, those R&D firms may be advised to have a combination of a powerful CEO and a board consisting of directors with more education, directors with industry‐specific experience and directors with interlocking directorate ties because the presence of a powerful CEO may motivate directors to provide ongoing advice and resources, leading to increased R&D investment necessary to enhance innovation capabilities.</p> </sec> </abstract>