Purpose – Explore how corporate governance affects development of firm technological knowledge.
Design/Methodology/Approach – I conducted canonical correlation analysis on a large sample of US manufacturing firms. Five dependent variables, measured using firms’ patent data, capture five dimensions of technological knowledge – breadth, depth, enhanced, new, and stagnant knowledge. Independent variables cover three dimensions of corporate governance – ownership concentration, managerial stake, and board composition. In addition, I included both industry and firm contextual variables, to increase the study’s reliability.
Findings – Results indicate two types of firms. One group consisting of ‘cautious generalists’, wherein high breadth and depth of technological knowledge and a strong emphasis on enhancement is linked to concentrated shareholdings, increasing top management’s stake in the firm by offering stock options, and a board low in accounting experience. In contrast, the second group’s technology profile de-emphasizes breadth and focuses on deepening existing knowledge stock. This group has a relatively weaker emphasis on stock options to reward top management and a board with strong financial background.
Originality/Value – This study furthers our understanding of strategic management of technological knowledge in three ways: by developing theoretically meaningful components of a firm’s aggregate stock of technology; constructing ratio-scale measures of those components – breadth, depth, enhanced, new, and stagnant technological knowledge; using canonical correlation analysis which, rather than multiple regression analysis, is the more appropriate technique to derive meaningful implications for managers.
Keywords: Technological knowledge, Corporate governance, Ownership, Board of Directors, R&D