Corporate Governance, Financial Constraints And R&D Investment

Technology innovation is the crucial element for the development of a firm which relates to the long-term goal of a company. To the broader view, nationwide innovation strategy depends on technology innovation of firms. Technology innovation of a firm could be characterized by R&D investment which could lead the firm to take up advantage position for competition in the market. What could influence the firm R&D investment would be the focus of our paper. Among the diversified factors which could affect firm R&D investment, corporate governance is one of the essential one. Corporate governance could not only help firm get the money to do R&D investment but also decide the efficiency to using this money. Therefore, it is paramount to study the relationship between corporate governance and firm R&D investment. After study the research about this area, this paper raises relative hypotheses about the relationship between corporate governance, financial constraints and firm R&D investment, using the panel data of 2008-2013 in high-tech industry to conduct an empirical test with Generalized method of moments method (GMM). Through comparing GMM with different methods to regress such as OLS and FE, we could see the diversified effects of corporate governance on R&D investment with different controlling conditions. This kind of study could provide support for firm innovation. The empirical results show that, the relations between corporate governance and R&D investment is an inverted U curve, with the promotion of corporate governance index, the R&D intensity will increase first and then decrease. Although the firm R&D activities could be constrained by corporate finance, the improvement of corporate governance structure and level will be perfectly helpful to reduce this kind of constraint on R&D investment. Therefore enhancing governance structure and environment, improving corporate governance level, at the same time fully exploring the influence mechanism of corporate governance has on R&D investment is the crucial way to decrease the limitation of firm’s finance conditions on R&D investment.