Corporate Governance Mechanisms and their Influence on Innovation Performance

This paper analyzes the complex interaction between corporate governance mechanisms and a firm’s innovation outcome. With a quantitative approach, this study examines time-series data of publicly listed firms to determine the impact of board structure (independence, diversity), upper-level remuneration policies, and ownership concentration on incremental versus radical innovation achievement. Results show that some governance mechanisms have moderating effects: board independence has a positive relationship with radical innovation, while executive long-term pay-performance contracts increase overall R&D spending. On the other hand, some ownership arrangements can promote myopic behavior and stifle sustained innovation. The study is instrumental for developing governance strategies capable of establishing an effective innovation system within firms, to secure enduring competitive edge.