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 4: Corporate governance and innovation in US-listed firms: the mediating effects of market concentration

Nawar Hashem and Mehmet Ugur


With the exception of a few studies, the literature on the relationship between corporate governance (CG) and innovation tends to investigate only the partial effects of CG dimensions on innovation. The aim of this chapter is to contribute to the debate by analysing not only the relationship between CG and innovation, but also how market concentration and CG interact in their effects on innovation. The case for examining both partial and interactive effects can be summarized as follows: investment in research and development (R & D) is costly and associated with uncertain returns for shareholders and uncertain private benefits for managers. At a given level of market concentration within an industry, CG rules affect managers’ innovation effort by ameliorating or exacerbating the agency problem. However, the level of market concentration also affects the managers’ innovation effort by affecting the rates of pre-innovation and post-innovation profits. Given these dynamics, it is necessary to investigate not only the partial effects of CG and market concentration on R & D expenditures; but also the way in which CG rules and market structure interact and affect the level of R & D effort.

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