Corporate Governance and Innovation: Theory and Evidence

Sapra, H and Subramanian, A and Subramanian, K (2014) Corporate Governance and Innovation: Theory and Evidence. Journal of Financial and Quantitative Analysis, 49 (4). pp. 957-1003. ISSN 1756-6916

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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.

Item Type: Article
Subjects: Corporate Governance
Date Deposited: 16 Oct 2018 08:58
Last Modified: 06 Jul 2023 20:57

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