Influence of Director Expertise on Capital Structure and Cash Holdings in High-Tech Firms

Subramanian Rama Iyer, Harikumar Sankaran and Steve T. Walsh

Technological Forecasting and Social Change, 2020, vol. 158, issue C

Abstract: Many “High-Tech” firms enjoy high market valuations despite negative earnings and low cash flows due in part to what many see as future bountiful earnings and cash flows, which is a cause for concern. How can corporate governance help? Do well-informed boards assist corporate success through better governance through their influence on financial policy: Capital Structure and Cash Holdings? We test these effects in “High-Tech firms” by segmenting firms into four levels based on technology intensity. We examine differences in board composition and the resultant influence on capital structure. Our fourteen-year sample period includes post-dotcom bubble years and post-Sarbanes-Oxley, which mandated the inclusion of financial experts on corporate boards. We defined two types of firm designated well-informed boards as a result of this analysis. We contribute to the literature in many ways. Using regression analysis and graph theory techniques, we found the educational makeup of high-tech firms to be significantly different from low-tech firms and that they approached capital structure with caution. Low-tech firms rely on board member network connectivity and agency theory's explicative powers.

Keywords: Board of Directors; Network Centrality; R&D (search for similar items in EconPapers)
JEL-codes: G3 G32 O30 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:tefoso:v:158:y:2020:i:c:s0040162518320493

DOI: 10.1016/j.techfore.2020.120060

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