Translating Discoveries to the Marketplace
The Johns Hopkins University series on Entrepreneurship
Edited by Phillip H. Phan
Chapter 6: How corporate governance affects innovation in the pharmaceutical industry
This study explores the impact of ownership and control on research expenditure intensity, patenting and new product introductions over a five-year period for 86 publicly listed pharmaceutical firms. Consistent with normative agency theory predictions, we find that the presence of block private and institutional shareholders – controlling for firm size and prior performance – is positively associated with innovation activity and its outcomes. We find that chief executive officer duality was positively related to R & D expenditures, and that insider-dominated boards were positively related to new product introductions. In the literature, there is a sense that management-dominated boards can lead to value destruction because decision control and management are combined. But when long-term irreversible investments of capital are required to drive innovation, the ability for managers to keep investing may spell the difference between success and failure. Combining decision control and management can sometimes have positive effects. Management-dominated board may, in specific circumstances, support more risk-taking and innovation. Therefore, ‘best practice’ recommendations for ‘independent (that is, outsider-dominated) boards’ should be reconsidered for firms engaged in high-risk innovation activities with uncertain outcomes.
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.