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Market Concentration, Corporate Governance and Innovation: Partial and Combined Effects in US-Listed Firms

Author

Listed:
  • Hashem, Nawar
  • Ugur, Mehmet
Abstract
Existing research on the relationship between market concentration and innovation has produced conflicting findings. In addition, the emerging literature on the relationship between corporate governance and innovation tends to focus only on partial effects of corporate governance on innovation. We aim to contribute to the debate by investigating both partial and combined effects of corporate governance and market concentration on innovation. Utilising a dataset for 1,400 non-financial US-listed companies and two-way cluster-robust estimation methodology, we report several findings. First, the relationship between market concentration and innovation is non-linear. Secondly, the relationship has a U-shape in the case of input measure of innovation (research and development - R&D – expenditures); but it has an inverted-U shape when net book-value of brands and patents is used as output measure of innovation. Third, corporate governance indicators such as anti-takeover defences and insider control tend to have a negative partial effect on R&D expenditures but a positive partial effect on net book-value of brands and patents. Finally, when interacted with market concentration, anti-takeover defences and insider control act as complements to market concentration. Hence, firms with strong anti-take-over defences and under insider control tend to spend more on R&D but are less able to generate valuable brands and patents as market concentration increases. These results are based on two-way cluster-robust estimation, which takes account of both serial and cross-sectional dependence in the error terms.

Suggested Citation

  • Hashem, Nawar & Ugur, Mehmet, 2012. "Market Concentration, Corporate Governance and Innovation: Partial and Combined Effects in US-Listed Firms," MPRA Paper 44135, University Library of Munich, Germany, revised Sep 2012.
    • Handle: RePEc:pra:mprapa:44135
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    References listed on IDEAS

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    Cited by:

    1. Sukhdeep Singh & Indrani Chakraborty, 2024. "Family involvement, innovation and product market competition," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(2), pages 361-386, April.

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    More about this item

    Keywords

    Innovation; competition; corporate governance; two-way cluster-robust estimation;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G3 - Financial Economics - - Corporate Finance and Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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