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Corporate governance, innovation and firm performance: evidence from India

Author

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  • Shital Jhunjhunwala
  • Shweta Sharda

Abstract

Innovation is crucial in determining the competitive position in the global market; however, management finds it difficult to allocate resources towards these investments due to uncertainty of returns in the future. Given that the board of directors monitor managerial decisions and encourage them to pursue innovative strategies for enhancing firm performance, this study examines the moderating effect of corporate governance on the relationship between innovation and firm performance in a panel of 599 Indian listed companies from 2015 to 2019 by employing fixed-effect regression analysis and conditional effects. Results signify the negative moderating impact of nomination and remuneration committee (NRC) busyness and NRC participation on the relationship between innovation and market indicator (Tobin's Q); however, none of them moderate the relation between innovation and financial performance (ROE). The findings also indicate the indirect influence of board independence on the strength of the R&D-performance relationship. Companies and regulators should develop measures to reduce management's influence in the nomination process to achieve the desired outcome from the mandatory composition of NRC.

Suggested Citation

  • Shital Jhunjhunwala & Shweta Sharda, 2023. "Corporate governance, innovation and firm performance: evidence from India," International Journal of Business Innovation and Research, Inderscience Enterprises Ltd, vol. 32(2), pages 226-251.
    • Handle: RePEc:ids:ijbire:v:32:y:2023:i:2:p:226-251
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