Managerial ownership, entrenchment and innovation

Mila Beyer, Dirk Czarnitzki and Kornelius Kraft
Authors registered in the RePEc Author Service: Mila Koehler

No 11-026, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Principle-agent theory suggests managers might under-invest into R&D for reasons of risk tied to project failure, such as reduced remuneration and job loss. However, managers might over-invest into innovation for reasons of growth implying higher remuneration, power and prestige. Using a sample of 1,406 Belgian firms, we find, first, that managers holding no company shares under-invest into R&D compared to owners giving rise to the risk argument. Second, we find an inverse u-shaped relationship between the degree of managerial ownership and R&D. Thus, managers become entrenched, i.e. powerful enough to pursue their own interests. When entrenched, managers do not fear detrimental effects of risky innovation projects on their career, and hence tend to over-invest into innovation.

Keywords: corporate governance; managerial ownership; entrenchment; innovation; R&D investments (search for similar items in EconPapers)
JEL-codes: G32 O31 O32 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-ino, nep-ppm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Managerial ownership, entrenchment and innovation (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:11026

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