Corporate governance and innovative success: An examination of the moderating influence of a firm's life cycle stage

In this study we examine whether corporate governance influences a firm's innovative success and if so, how this association is moderated by the life cycle stage of the firm. Innovative success is a broad term and is difficult to measure. Based on Mansfield (1981) we trichotomize 'innovative success' into three components, namely, technical (measured by number of patents received), commercial (measured by sales growth) and economic success (measured by Tobin's Q as based on Mansfield (1981)). We use a sample of electronic firms in Taiwan which invested in research and development covering the years 2001-2009. We find that higher levels of corporate governance have a significant effect on two components of innovative success, namely, patent productivity and a firm's value but not on commercial success as measured by sales growth. We also find that the influence of corporate governance on the three components of innovative activity is most pronounced when the firm is in the stagnant stage of its respective life cycle and least pronounced when the firm is in the growth stage. Our study adds to the discussion on the importance of corporate governance by showing that while it has a positive influence on innovative activity, its impact is contingent on the stage of the firm in its respective life cycle.