Relationship Between Corporate Governance And R&D Investment

Innovation is the soul and the core competitiveness of enterprise’s survival anddevelopment, and it is also the source of competitive advantage to realize costdecreasing and benefit increasing. R&D expenditure and innovation activities areclosely related to a country’s economic sustainable development. Our enterprises areshort of R&D expenditure compared with the United States, Japan, Germany andother western developed countries. There are a number of factors affecting theenterprise’s R&D expenditure, and the corporate governance is one of the key factors.The external corporate governance mechanism affects the interests and power of thestakeholders through the supervision of the external market competition. However, itis lack of systematic empirical research in the literature at home and abroad.Therefore, this article will try to explore the external factors which affecting R&Dinvestment in China’s listed companies from the perspective of external corporategovernance mechanism.Based on the current situation of Chinese enterprise’s R&D expenditure, First ofall, analyzing R&D investment problems with the Principal-Agent Theory andstakeholder theory. Secondly, discussing the influences of external corporategovernance mechanism to R&D investment, based on the creditor governancemechanism, managers’ competition in the market and product market competition.Finally, under the control of a series of internal governance variables, the articlecarried on the empirical tests using the data of the2010-2012listed companies thatdisclosing R&D expenditure in Shanghai and Shenzhen.After the above analysis, the results show that:(1) There is a significant negativecorrelation between leverage and R&D investment. The higher leverage will increasethe management risk of the enterprise. Therefore, the creditors will force the companyto protect their interests and their willingness to participate in corporate governance ismore intense. So, liabilities caused significant inhibition of R&D investment.(2)There are different influences on R&D investment between short-term liabilities and long-term liabilities. Short-term liabilities are negatively related to the R&Dinvestment, and long-term liabilities are related.(3) There is a significant negativecorrelation between external managers and R&D investment. It does not agree withthe proposed research hypotheses, probably because along with the advance of theexternal managers market and the pressure of external managers, company managersfaced with the risk on the replacement. So they will avoid risk when makinginvestment decisions. Thus, external managers inhibit the enterprise R&D investmentactivities.(4) The industrial concentration is significant negatively related to the R&Dinvestment. It means that the lower industrial concentration, the higher the level ofproduct market competition. And it is more beneficial to promote enterprises toincrease R&D investment.