Governance, Regulation and Innovation
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Governance, Regulation and Innovation

Theory and Evidence from Firms and Nations

Edited by Mehmet Ugur

This book aims to disentangle the complex relationship between innovation and its potential determinants, paying special attention to the roles of governance and regulatory frameworks, and the ways in which the latter interact with other drivers of innovation such as competition and the innovator’s closeness to the technology frontier.
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Chapter 3: Effects of firm-level corporate governance and country-level economic governance institutions on R & D curtailment during crisis times

Peter-Jan Engelen and Marc van Essen

Extract

The 2007–09 financial crisis has been the world’s deepest since the Great Depression of the last century. This particular financial crisis can be characterized as the burst of the US real estate bubble in 2007 which caused sharp decreases in asset values and overall uncertainty in financial markets and resulted in the collapse of a number of major financial institutions in the US and Europe. This had far-reaching spillover effects on non-financial firms as well. In times of economic distress companies are particularly exposed to environmental threats that could hamper the firm’s performance and potentially even the firm’s existence. Such circumstances typically push companies to save on costs and scrutinize research and development (R & D) budgets: ‘In fact, R & D is a perennially attractive target for corporate belt-tightening rituals, since it doesn’t produce cash directly. Now more than ever, many companies are trying to generate quick savings [. . .] by asking their development groups to cut costs across the board’ (Barrett et al., 2009: 1). The credit crisis is a particularly interesting time frame to examine R & D cuts as a recent survey among more than 1000 Chief Financial Officers indeed reveals that, during the credit crisis, firms were planning major cuts in almost all corporate policy parameters such as technology expenditures, capital expenditures, and marketing expenditures, among others (Campello et al., 2010).

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