Does Corporate Governance Quality affect R&D Expenditures?

Investment in R&D spawns innovations, which in turn, foster economic growth. In recent years, researchers have become increasingly aware of the impact of corporate governance on innovation. We examine the relation between research & development (R&D) expenditures and a governance index that contains various antitakeover and shareholder protection provisions. Using a broad based measure that encompasses 51 governance factors (Brown and Caylor, 2005), the empirical results indicates a positive association between corporate governance quality and R&D expenditures. In addition, the paper also shows that firms which are more financially constrained tend to reduce investment in R&D.