The influence of corporate governance on the volatility of R&D investment: an empirical study on its relationship with firm performance

Mu-Shun Wang ()
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Mu-Shun Wang: Kainan University

Quality & Quantity: International Journal of Methodology, 2025, vol. 59, issue 4, No 3, 3022 pages

Abstract: Abstract This study delves into the critical role of corporate governance in fostering research and development (R&D) stability in Taiwanese firms, addressing a gap in existing research by examining how a strong Corporate Governance influences R&D expenditure volatility. Utilizing a survey database of Taiwanese companies, we explore the moderating effect of a firm's risk-taking to transfer pricing across multi-international enterprise on this relationship. Additionally, we investigate how the mainly corporate governance variables affect motives for using transfer pricing and cash flow, as well as the influence of ownership structure. By employing system GMM to estimate a dynamic model, we examine the relationship between R&D expenditure volatility and idiosyncratic volatility, incorporating several key components through a difference-in-difference method. The empirical results provide convincing evidence that good corporate governance practices mitigate R&D fluctuations, constrain related-party transactions or cash flow, and have statistically significant negative impacts on R&D expenditure volatility. Furthermore, transfer pricing and cash flow positively moderate these effects. These findings are robust across multiple sensitivity tests and highlight the potential benefits of transparency in financial statements for regulatory authorities.

Keywords: R&D expenditure volatility; Corporate governance index; Panel data; GMM; Cash flow; Transfer pricing (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11135-025-02081-2

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