Corporate Governance and Innovation: Theory and Evidence. (23rd January 2015)

• Record Type: Journal Article
• Authors: Sapra, Haresh; Subramanian, Ajay; Subramanian, Krishnamurthy V.
• Is Part Of: Journal of financial and quantitative analysis. Volume 49:Number 4(2015)
• Page Start: 957
• Page End: 1003
• Publication Date: 2015-01-23
• Subjects: Finance -- Periodicals; Investments -- Mathematics -- Periodicals; 332.05
• DOI: 10.1017/S002210901400060X
• Languages: English
• ISSNs: 0022-1090

Abstract

<abstract abstract-type="normal"> <title>Abstract</title> <p>We develop a theory to show how external and internal corporate governance mechanisms affect innovation. We predict a U-shaped relation between innovation and external takeover pressure, which arises from the interaction between expected takeover premia and private benefits of control. Using ex ante and ex post innovation measures, we find strong empirical support for the predicted relation. We exploit the variation in takeover pressure created by the passage of antitakeover laws across different states. Innovation is fostered either by an unhindered market for corporate control or by antitakeover laws that are severe enough to effectively deter takeovers.</p> </abstract>