Board structure and corporate R&D intensity: evidence from Forbes global 2000

• DOI: https://doi.org/10.1108/IJAIM-11-2019-0127
• Pages: 445-463
• Date: 11 March 2020
• Published date: 11 March 2020
• Author: Aws AlHares,Ahmed A. Elamer,Ibrahem Alshbili,Maha W. Moustafa
• Subject Matter: Accounting methods/systems,Accounting & Finance,Accounting/accountancy

Board structure and corporate

R&D intensity: evidence from

Forbes global 2000

Aws AlHares

Department of Accountancy and Finance, Business School,

University of Huddersf‌ield, Huddersf‌ield, UK and

Faculty of School of Business Studies, College of the North Atlantic, Doha, Qatar

Ahmed A. Elamer

Brunel Business School, Brunel University London, London, UK and

Department of Accounting, Faculty of Commerce,

Mansoura University, Mansoura, Egypt

Ibrahem Alshbili

Libyan Audit Bureau, Tripoli, Libya, and

Maha W. Moustafa

School of Mathematics and Statistics, The Open University, Milton Keynes, UK

and Department of Applied Statistics and Insurance,

Mansoura University, Mansoura, Egypt

Abstract

Purpose –This study aims to examine the impactof board structure on risk-taking measured by research

and development(R&D) intensity in OECD countries.

Design/methodology/approach –The study uses a panel data of 200 companieson Forbes global 2000

over the 2010-2014 period. It uses the ordinary least square multiple regression analysis techniques to

examine the hypotheses.

Findings –The results show that the frequency of board meetings and board size are signif‌icantly and

negatively related to risk-taking measured by R&D intensity, with a greater signif‌icance among Anglo-

American countries than among ContinentalEuropean countries. The rationale for this is that the legal and

accounting systems in the Anglo American countries have greater protection through greater emphasis on

complianceand disclosure, and therefore, allowing for less risk-taking.

Research limitations/implications –Future research could investigate risk-taking using different

arrangements,conducting face-to-face meetings with the f‌irm’s directorsand shareholders.

Practical implications –The results suggest that better-governed f‌irms at the f‌irm- or national-level

have a high expectancy of less risk-taking. These results offer regulators a resilient incentive to pursue

corporate governance (CG) and disclosure reforms off‌icially and mutually with national-level governance.

Thus, these results show the monitoringand legitimacy benef‌its of governance, resulting in less risk-taking.

Finally, the f‌indingsoffer investors the opportunity to build specif‌ic expectationsabout risk-taking behaviour

in terms of R&D intensity in OECD countries.

Originality/value –This study extends and contributes to the extant CG literature, by offering new evidence

on the effect of board structure on risk-taking. The f‌indings will help policymakers in different countries in

estimating the suff‌iciency of the available CG reforms to prevent management mishandle and disgrace.

Keywords Corporate governance, R&D, Board size, OECD countries, Forbes, Frequencyofboardmeetings

Paper type Research paper

The impact of

board

structure

445

Received3 November 2019

Revised11 December 2019

Accepted31 December 2019

InternationalJournal of

Accounting& Information

Management

Vol.28 No. 3, 2020

pp. 445-463

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-11-2019-0127

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1834-7649.htm

1. Introduction

This study examines the impact of the internal corporate governance (CG) mechanism on

risk-taking during the period 2010 to 2014 in OECD countries. Different country

characteristics extend a major degree of inf‌luence on the different systems of CG under

which f‌irms execute. Different legal systemsimpact the quality of the corporate rights that

f‌irms must meet. Legal systems are signif‌icant becauseof the serious external controls that

they extend on f‌irms dealing with them (Alshbili and Elamer, 2019;Elamer et al.,2018,

2019a,2019b;Elmagrhi et al.,2017;Hassan et al., 2019;Nish, 2015;Ullah et al., 2019;Yu and

Wang, 2018). Thus, this study contributes to current research by analysing how CG

mechanisms are mightily determined by certain countries in which f‌irms operate, and how

CG mechanisms that are set to be useful in these countries are based on legal, accounting

and auditing practices as well as on ownership issuesthat are combined in those countries.

On the other hand, culture impacts attitudes and corporate values in different f‌irms

(AlHares and Ntim, 2017).

The literature on the relationship between frequency of board meetings, board size and

f‌irm performance, particularly with respect to risk-taking, is not conclusive. For example,

previous research is inconclusive on whether board monitoring positively (Kor, 2006)or

negatively (AlHares et al., 2018a,2018b;Deutsch, 2005;Yoo and Sung, 2015) impacts f‌irms’

research and development (R&D) intensity.More specif‌ically, there is a dearth of studies on

how different CG mechanisms used by companies inf‌luence the risk-taking (Switzer and

Wang, 2013;Tran, 2014). Consequently, this study seeks to contribute to the extant

literature by addressing the limitationsof previous studies via an empirical examination of

the relationship between CG and risk-taking.According to Vafeas (1999), some believe that

frequent board meetings and boardsize would ultimately have a positive impact on a f‌irm’s

risk-taking, but another view holds that board meetings and board size do not benef‌it

shareholders of a f‌irm. However, there appears to be more support for board structure

benef‌itting forecasts of management earnings (Karamanou and Vafeas, 2005). Another

study shows that board structure contributes to improved f‌irm performance (Tauringana

and Mangena, 2006). Also, Yu and Wang (2018) suggest that f‌irms with comparatively

robust CG instruments, stakeholders tend to have more correct beliefs about f‌irms’future

performance, less asymmetryand investor expectations about earnings change more slickly

over the year. This implies thatCG performs a signif‌icant part in the expectedness of f‌irm’s

future performance and, thus, advances the f‌inancial environment (Agyemang-Mintah and

Schadewitz, 2019;Ko et al.,2019;Sial et al.,2019;Ullah et al., 2019;Waresul Karim et al.,

2013;Zouari and Zouari-Hadiji,2014).

Extant research offers inconclusive evidence on the association between the board of

directors and decisions regardingR&D intensity (Bravo and Reguera-Alvarado, 2017;Chen,

2013, 2014;Dalziel et al.,2011;Tseng et al., 2013). Previous research shows that the level of

R&D intensity is valued forf‌irms, regardless of the industry (Bravo and Reguera-Alvarado,

2017;Eihe and Olive, 2010). Several studies suggest that R&D activities are highly risky

with their returns being highlyuncertain (Pindado et al.,2015),and thus, the question of how

the board of directors’characteristics may inf‌luence R&D choices within a company is a

signif‌icant issue in the research related to both CG and R&D. This study contributes to the

current literature (Bravo and Reguera-Alvarado, 2017;Chen, 2014) by theoretically

integrating both agency theory and resource dependence theory by investigating the

possible relation between two directors’characteristics board size and board meetings and

strategic choices re R&D intensity. This shedslight on the impact of the board of directors’

characteristics on the application of R&D plans by in view of both resource agency theory

and dependency theory. Our theoretical basis suggests that only directors with adequate

IJAIM

28,3

446