A Study on the Impact of Internal and External Governance Characteristics on Corporate R&D Investment – Based on China GEM Listed Companies
Zheyuan Liu
City University of Macau
lzy5000000@163.com
Abstract
It is of theoretical and practical significance to study the impact of internal and external governance characteristics on corporate R&D investment. High-tech enterprises have been attracting much attention as representatives of innovation. And under the current competitive pressure of the industry in China, the development path of improving the competitiveness of enterprises through independent innovation has become the main way out for contemporary Chinese high-tech enterprises to survive and develop under the pressure of fierce competition. However, scholars at home and abroad have not paid much attention to the relationship between corporate internal and external governance and R&D investment activities, and most of the conclusions drawn at present are different. On the one hand, it is difficult to quantify the impact path of corporate governance on enterprises into a single variable for measurement, and on the other hand, the impact of internal and external governance on enterprises is too complex, which has both positive and negative effects. Therefore, under China’s current economic transition background, in order to fully understand the impact of corporate internal and external governance on corporate R&D investment decisions, the following questions need to be explored: i. whether corporate governance affects corporate R&D investment; ii. the inner mechanism of the impact of corporate internal and external governance on R&D investment activities; iii. the relationship between corporate internal governance and R&D investment activities, and whether it is influenced by external governance.
Based on high-tech enterprises, this paper proposes relevant assumptions after summarizing and analyzing the research conclusions of other scholars, and sorts out missing data based on the data of the annual reports of China GEM manufacturing listed companies from 2011 to 2020 to measure the specific impact of corporate governance and industry competition on enterprise R&D investment and the regulatory role of industry competition on the relationship between corporate governance and enterprise R&D investment. Through positive analysis, the author finds that: Firstly, from the external perspective, the degree of industry competition will significantly affect the R&D investment decisions of enterprises, and the more intense the industry competition, the lower the R&D investment intensity of enterprises; Second, from the internal perspective of the company, state-holding enterprises can make more R&D investment than non-state-holding enterprises, and the combination of two positions of chairman and general manager can promote the R&D investment; Thirdly, industry competition will not has regulatory effect in the relationship between state-holding, positions combination and R&D investment.
Keywords: corporate governance, competitiveness, innovation, high-tech enterprises, R&D investment, regulatory effect
Chapter 1 Introduction
With the continuous progress of science and technology, market competition is becoming increasingly fierce. At the same time, China’s economic growth mode is also changing quietly. Now China is changing from the traditional mode of labor-intensive, capital-dependent and resource-dependent to innovation-driven. The 18th National Congress held in 2012 formally upgraded the “innovation-driven development strategy” to a national strategy. The 19th National Congress held in 2017 proposed that “innovation is the foremost driving force to lead development”. Since then, innovation has become the theme of China’s development in the new era.
Enterprises need to constantly innovate their products and services to maintain their industrial competitiveness in the industry. Currently, the way to measure the degree of enterprise innovation is accounting information such as R&D expenditure. The R&D expenditure of Chinese listed companies has been subject to the voluntary disclosure before 2007, which has indirectly resulted in a situation where China has relatively less theoretical research on R&D expenditure. However, since the implementation of the new accounting standards in 2007, the listed companies have been required to disclose their R&D expenses and formulated corresponding disclosure standards, which have now begun to bear fruit. It is therefore more feasible to study the company’s R&D investment at this stage than before.
However, R&D innovation carries certain risks. When making R&D innovation decisions, enterprises should fully consider various possible external factors, among which the degree of industry competition is the most important external factor for enterprises, and also the factor to be studied in this paper. The internal factors of enterprises are among the most important factors that may affect R&D investment. But the research of scholars in various countries mostly focuses on a particular factor, and few of them comprehensively study different combinations of multiple factors. Moreover, fewer scholars take into account the factors that affect the level of industry competition outside the enterprise and the factors that affect the corporate governance within the enterprise. Based on the theory of technological innovation and information asymmetry, this paper analyzes the regulatory effect of industry competition degree on corporate governance and R&D investment relationship within enterprises.
From the perspective of development, this paper hopes to lay a certain foundation for other scholars to conduct theoretical research and provide new ideas for existing research; for the actual operation and management of enterprises, it is also hoped that enterprises can formulate more scientific R&D investment strategies according to their own characteristics to improve the efficiency of R&D investment.
Chapter 2 Literature Review
The fierce market competition and the globalization of economic trade make enterprises to constantly carry out R&D innovation if they want to meet the market demand. According to Schumpeter’s (1942) theory, the higher the industry concentration of enterprises, the more they can promote R&D activities [1]. However, Arrow’s (1959) view is different from Schumpeter’s. He found that when the market is in perfect competition, enterprises are more active in R&D innovation [2]. Holmes (2012) conducted an in-depth study on Arrow’s point of view and believed that the reason why the monopoly market is not conducive to R&D and innovation activities is because of the loss aversion of monopoly enterprises [3]. Vithessonthi and Racela (2016) selected non-financial listed companies from the New York Stock Exchange and the Nasdaq Stock Exchange for research, and used Tobin’Q to represent enterprise performance. Through their research, they found that enterprises’ R&D investment activities can enable them to gain greater advantages in market competition [4].
The R&D activities affect the development of enterprises and guide their future direction. Thus, shareholders and management attach great importance to it. Ricardo et al. (2019) found through empirical research on European enterprises that different corporate governance will lead to different R&D investment intensity [5]. According to the principal-agent theory, when the companies with the separation of board of directors and general manager, the general manager will have short-sighted behavior, while when the two positions are combined, the behavior of the general manager is more conducive to the long-term development of the company, and its R&D investment intensity will also be significantly improved (Francis and Smith 1995; Lee and O’Neiil 2003) [6, 7].
As for the research on the nature of equity, Francis and Smith found that when the major shareholders can control the enterprise, it is more inclined to carry out internal R&D innovation [6]. Compared with non-state-owned enterprises, state-owned enterprises have less incentive in R&D investment, and their efficiency will be significantly reduced. Therefore, reducing the proportion of state-owned shares or increasing the proportion of non-state-owned shares will be more beneficial to enterprise innovation (Brantley 1997) [8]. The research conclusions of Li Zheng and Lu Yinhong (2014) differ from the above-mentioned scholars [9], and their study shows that the innovation ability and innovation performance of state-owned holding enterprises are significantly higher than those of non-state-owned holding enterprises in China.
In terms of the interaction between the degree of industry competition and corporate governance on enterprises, some foreign scholars have already had a certain understanding through research. They believe that the external market competition mechanism can replace the internal corporate governance mechanism to a certain extent (Grossman, 1991; Chen H, 2014) [10,11]. As a challenge that enterprises must face, industry competition will have a profound impact on R&D investment, and even on corporate governance (De Maere et al., 2014) [12]. But studies by Le (2006) and others show that although many corporate governance factors can significantly affect the R&D investment of enterprises, some external factors do not regulate the relationship between corporate governance and R&D investment [13]. Fu Chuanrui (2018) and others found that industry competition and corporate governance mechanisms can, to a certain extent, substitute each other to affect various company decisions [14]. Li Chang’e (2017) put forward that the degree of industry competition will not play a regulatory role in the relationship between the power of the board of directors and R&D investment [15]. Gong Lixin and Lv Xiaojun (2018) also believe that no matter how the external environment changes, there will be no regulatory effect on R&D investment and corporate governance or R&D subsidy efficiency [16].
Chapter 3 Theoretical analysis and research assumption
When enterprises invest in R&D, they will be affected by external governance factors such as industry competition. In particular, the competition in China’s industry is extremely severe. Therefore, whether an enterprise has an advantage in the industry competition will be directly reflected in the financial statements. If the enterprise has good benefits and large R&D investment, it can basically be determined that it has a greater advantage in the competition; on the contrary, if the product loses its competitive advantage, then the enterprise’s efficiency will be inevitably affected, and even the survival of the enterprise may be threatened. With the increasing concentration of the industry, enterprises will gradually increase their R&D expenditure. When the industry concentration reaches the monopoly level, enterprises carry out R&D innovation in order to maintain the monopoly position and monopoly profits, and monopoly enterprises have greater advantages in scale economy, risk sharing and other aspects, they have adequate financial support for their innovation and the risk is lower. This is consistent with Schumpeter’s (1942) view in the theory of technological innovation: monopoly can promote enterprise innovation more than competition.
Therefore, assumption 1 can be proposed:
Assumption 1: The higher the industry competition, the lower the enterprises R&D investment intensity.
When studying the corporate governance of China’s listed companies, it is inevitable to find the differences between China and other countries. The main reason is that China’s listed companies have a large proportion of state-owned shares, which is relatively rare in foreign countries. At the same time, considering that in China, state-owned enterprises are not only profitable like other enterprises, but also need to promote the steady development of the national economy and improve the daily life of residents. Therefore, when formulating various policies, the government will have a certain inclination towards state-owned enterprises to ensure the smooth operation of the national economy, which has caused state-owned enterprises to have a strong administrative advantage in R&D investment, which has also reduced the short-sighted behavior of state-owned enterprise leaders, and thus increased R&D investment. This is another form of equity structure theory. To sum up, China’s state-owned holding enterprises hold the lifeblood of the national economy, and their natural administrative advantages will make them more active in R&D investment.
Therefore, the following assumption 2 can be proposed:
Assumption 2: State holding can promote enterprises to invest in R&D.
An important measure of corporate governance is whether the two positions of chairman and general manager are separated. According to the principal-agent theory, the integration of the two positions can improve the communication efficiency between the management and the board of directors, and help the company make necessary decisions quickly. The corresponding to the integration of the two roles is the separation of the two roles, which enables the management and governance of the company to obtain more abundant resource and information, and maintains the independence of the board of directors, supervises the management, and prevents the phenomenon of insider control. When the two positions are separated, the general manager lacks the absolute voice in the company, which will lead to his inaction or lack of action for his own benefit, and will also lead to the reduction of activities like R&D investment, which are beneficial to the long-term development of the company. Scholars from various countries have also found that if the two positions are separated, the enterprise’s decision-making efficiency will be significantly reduced and the management cost will be increased. Thus, the separation of chairman and general manager is not conducive to R&D investment.
Therefore, the following assumption 3 can be put forward:
Assumption 3: The separation of chairman and general manager has an inhibiting effect on R&D investment activities of enterprises.
In recent years, when scholars continue to study various issues of the company, they find that it is incorrect to focus only on the impact of external governance on R&D investment or only on the impact of internal governance on R&D investment, while ignoring the regulatory role of both on R&D investment. Considering that the actual controllers of most listed companies in China are the state, which is different from the situation in western developed countries. At this stage, China’s state-owned holding enterprises still play a leading role in social and economic development and are an important guarantee for the national innovation and development of state-owned enterprises, so most of the preferential policies formulated by the state will be implemented in state-owned enterprises first, and most of the national R&D funds will also be allocated to state-owned enterprises. Considering the actual situation in China, although industry competition as an external governance mechanism may affect the internal governance mechanism, this assumption may not be applicable to the current situation of Chinese companies. Thus, this paper believes that industry competition will not affect the relationship between the state-owned holding of enterprises and R&D investment.
Therefore, assumption 4 can be proposed:
Assumption 4: The regulatory effect of industry competition on state-owned holding and R&D investment is not significant.
Friedman (1953) pointed out that when enterprises face fierce industrial competition, enterprise owners and managers do not need to worry about the agency problem of enterprises. Guadalupe and Pérez-González took “executives abuse their power for personal gain” as the explanatory variable of corporate governance and conducted empirical research on monopoly industries and competitive industries respectively. They also found that industry competition can indeed reduce the probability [65]. In general, industry competition can affect the internal governance mechanism to a certain extent to reduce the agency problem of senior executives. Whether the two positions chairman and general manager are integrated or not, is an important indicator of the agency problem of senior executives should also be affected by industry competition to a certain extent. The higher the industry concentration, the greater the positive impact of the integration of the chairman and general manager on R&D investment.
Therefore, the following assumption 5 can be put forward:
Assumption 5: The degree of industry competition has a positive regulatory effect on the relationship between the integration of chairman and general manager and R&D investment.
Chapter 4 Research design
4.1 Related variable setting
4.1.1 Interpreted variable
This paper mainly uses research and development (R&D) investment intensity to measure the R&D investment of enterprises. The specific calculation formula is the ratio of the company’s annual R&D expenditure to the company’s annual operating income. Because some high-tech listed companies have no R&D expenditure in some years, this paper excludes the data samples without R&D expenditure.
4.1.2 Explanatory variables
(1) Degree of industry competition
This paper selects the Huffindahl index (HHI) as a measure of industry competition. The specific calculation formula is:
（1）
Ci refers to the ratio of the company’s annual operating income to the total operating income of the industry.
According to the formula, the smaller the HHI, the higher the degree of industry competition, and the greater the competitive pressure of enterprises; on the contrary, the larger the HHI is, the higher the industry concentration is, indicating that the enterprise has an advantage in the industry.
(2) Concurrency of Chairman and General Manager
In order to verify the impact on R&D investment of the situation proposed in this paper about the concurrent role of the chairman and the general manager, this paper divides the concurrent role of the chairman and the general manager into two situations, that is, the concurrent role of the chairman and the separation of the two positions. This variable is represented by the dummy variable Dual. If the chairman concurrently serves as the general manager, it is represented by 1, and if the two positions are separated, it is represented by 0.
(3) State holding
According to whether the actual controller of high-tech listed companies is state-owned or not, this paper divides the companies into state-owned and non-state-owned, and uses Owner as the variable of state-owned holding. This variable is a dummy variable. If it is state-owned holding, take 1, if it is non-state-owned holding, then take 0.
4.1.3 Control variables
(1) Enterprise scale
Many economists have found that the R&D investment intensity is greatly affected by the size of enterprises. Empirical studies show that the size of enterprises is significantly related to the R&D investment intensity, but the conclusions of various studies are not the same. This paper uses Size to represent the scale of the enterprise, and the specific calculation method is the natural logarithm of total assets.
(2) Profitability
Profitability is a commonly used indicator to measure enterprise benefits in research. This paper uses the total assets yield to measure the profitability of enterprises, ROA represents total assets yield, and the calculation method is net profit/total assets.
(3) Financial leverage
This paper uses the asset-liability ratio as the proxy variable of financial leverage, and uses Lev to represent the asset-liability ratio. The calculation formula is the book value of total liabilities to the book value of total assets.
(4) Industry
In accordance with the Guidelines for Industry Classification of Listed Companies issued by the China Securities Regulatory Commission, this paper divides enterprises into three categories according to the technological content of their industries, that is, high technology industry, medium technology industry and low technology industry, and sets two dummy variables: whether it is a high technology industry (High), if the enterprise belongs to High, take 1, otherwise take 0; whether it is a low technology industry (Low), if the enterprise belongs to Low, take 1; otherwise, take 0.
(5) Year
In order to control the impact of macro environment on industry competition and corporate governance on R&D investment, this paper also controls the year. This variable is represented by Year. 1 represents it is on the year, and 0 represents not.
The explained variables, explanatory variables and control variables studied in this paper are shown in Table 1:
Table 1 Variable definition table
| Variable Properties | Influencing Factors | Variable Symbols | Meaning | Valuation Method |
| Explained variables | Research and development | R&D | R&D investment intensity | R&D expenditure / main business income |
| Explanatory variables | Industry conditions | HHI | Degree of industry competition | (intra-industry company turnover / total industry turnover) ^2 |
| Corporate governance | Dual | Concurrency of Chairman and General Manager | 1 for concurrent, 0 for not concurrent | |
| Owner | Situation of state-owned holdings | 1 for state-owned enterprises, 0 for non-State-owned enterprises | ||
| Control variable | Company size | Size | Asset size | Natural logarithm of total assets |
| Profitability | ROA | Assets yield | Net profit / total assets | |
| Financial leverage | Lev | Asset-liability Ratio | Total Liabilities / Total Assets | |
| Industry | High | High Technology Industry | If the enterprise belongs to High, take 1, otherwise take 0 | |
| Low | Low technology industry | If the enterprise belongs to Low, take 1, otherwise take 0 | ||
| Year | Year | Which year the enterprise on | 1 represents it is on the year, and 0 represents not |
4.2 Sample Selection and Data Source
Considering that not all the high-tech listed companies have R&D investment, this paper takes the annual data of Listed Companies in GEM manufacturing industry from 2011 to 2020 as the initial data, deletes the data samples that were missing during the initial data study, and finally gets the panel data of Listed Companies in China’s GEM manufacturing industry after collation, including 29 companies in 2011, 108 in 2012, 181 in 2013, 228 in 2014, 244 in 2015, 274 in 2016, 331 in 2017, 403 in 2018, 488 in 2019 and 510 in 2020, 2796 in total. The explanatory variables, explained variables and control variables studied in this paper come from the CSMAR database and some of the data is manually collected. Considering the influence of the extreme values of the related data on the results of the study, in order to ensure the stability of the results of the study, all the data of the continuous variables related to the study were processed with 1% winsorization. Excel 2010 and Eviews 10.0 was adopted to process later data compilation and statistical analysis.
4.3 Model design
In order to verify the assumptions put forward in Chapter 3, this paper constructs the following five multiple regression models to test the hypothesis positively:
（2）
（3）
（4）
（5）
（6）
Wherein, refers to random error, and other variables are defined in Table 4-1.
Chapter 5 Empirical research
5.1 Descriptive analysis
Table 2 Descriptive statistics of variables
| N | Average | Median | Maximum | Minimum | SD | |
| R&D | 2796 | 6.5341 | 4.9900 | 72.7500 | 0.0200 | 5.5766 |
| HHI | 2796 | 0.0212 | 0.0146 | 0.4588 | 0.0077 | 0.0329 |
| Size | 2796 | 21.1277 | 21.0282 | 25.0257 | 18.7602 | 0.7760 |
| ROA | 2796 | 0.0624 | 0.0626 | 0.4315 | -1.0288 | 0.0779 |
| Lev | 2796 | 0.2797 | 0.2515 | 1.6852 | 0.0110 | 0.1676 |
Table 2 lists the descriptive statistical results of all variables except dummy variables involved in the model (2), (3), (4), (5) and (6). The result shows that the average R&D investment intensity of enterprises is 6.5341, and the median is 4.9900. Because the enterprises’ emphasis on R&D investment is not the same, the median and the average has a great difference. The maximum value of R&D is 72.7500, and the minimum value is 0.0200. There is a great difference between the two values, which basically indicates that the listed companies in China’s high-tech manufacturing industry have large difference in emphasis degree to R&D investment.
In the selected sample, the average of HHI is 0.0212, the median is 0.0146, the maximum value is 0.4588, and the minimum value is 0.0077. The large difference between the maximum and minimum values indicates that the industry status of China’s high-tech manufacturing listed companies is significantly different; the large difference between the average and the median indicates that it is common for listed companies in China’s high-tech manufacturing industry to have market shares lower than the industry average, which further indicates that the industry conditions faced by the listed companies are quite different.
In addition, according to the descriptive statistical results of the control variables, it can be found that the average of Size is 21.1277, and the median is 21.0282. The difference between the two values is small, indicating that most of the listed high-tech manufacturing companies still have a large space for development in terms of company size. The maximum value is 25.0257, and the minimum value is 18.7602, which indicates that the scale gap between the listed companies is not obvious, and there is no obvious advantage in terms of development scale. The average ROA is 0.0624, and the median is 0.0626. There is no significant difference between the two values, which indicates that most of the listed companies are in a profitable state. The maximum value is 0.4315 and the minimum value is -1.0288, which shows that there is a huge gap between the listed companies in terms of profitability, and each company faces different situations. The average value of the Lev is 0.2797, the median is 0.2515, the maximum value is 1.6852, and the minimum value is 0.0110, which shows that the most listed companies need to rely on debt to maintain their operations and the debt level is currently in a reasonable range, but it can be seen from the difference between the maximum and minimum values, the external debt financing opportunities available to listed companies in China’s high-tech manufacturing industry vary greatly.
5.2 Correlation test
Before regression analysis on the relationship between industry competition degree, corporate governance and R&D investment, this paper first uses Pearson correlation coefficient to test the correlation among explanatory variables, explained variables and control variables. The specific results are shown in Table 3.
Table 3 Correlation test
| R&D | HHI | Dual | Owner | Size | ROA | Lev | High | Low | |
| R&D | 1 | ||||||||
| HHI | 0.0541*** | 1 | |||||||
| Dual | 0.0534*** | -0.0013 | 1 | ||||||
| Owner | 0.0411** | -0.0283 | -0.1899*** | 1 | |||||
| Size | -0.0632*** | -0.1590*** | -0.1198*** | 0.0475** | 1 | ||||
| ROA | -0.1832*** | 0.0302 | 0.0354* | -0.0097 | -0.1221*** | 1 | |||
| Lev | -0.1736*** | -0.1145*** | -0.0309 | -0.0190 | 0.4370*** | -0.2248*** | 1 | ||
| High | 0.1500*** | -0.2988*** | 0.0309 | 0.0262 | 0.1392*** | -0.0792*** | 0.0559*** | 1 | |
| Low | -0.1406*** | 0.3059*** | -0.0426** | -0.0207 | -0.1341*** | 0.0745*** | -0.0610*** | -0.9732*** | 1 |
Note: * * *, * *, * are significant at 1%, 5% and 10% confidence levels respectively.
It can be seen from the Pearson correlation coefficient among the variables in the table that the absolute value is mostly below 0.4, indicating that there is no serious multicollinearity between these variables; the correlation coefficient between each explanatory variable and the control variable is not more than 0.4, indicating that there is no serious multicollinearity between the two variables, and multiple linear regression analysis can be conducted on them. At the same time, the correlation coefficients of the HHI, Dual, Owner and R&D are positive, which indicates that the improvement of industry competition will reduce the R&D investment intensity of enterprises, while the integration of chairman and general manager will promote R&D investment of enterprises, which preliminarily supports the assumptions of this paper.
5.3 Regression result analysis
5.3.1 Impact of industry competition on R&D investment
Table 4 Regression analysis of industry competition on R&D investment
| Coef | Std. Err. | t | P>t | |
| HHI | 14.4149*** | 3.2014 | 4.5027 | 0.0000 |
| Size | -0.0270 | 0.1446 | -0.1870 | 0.8516 |
| ROA | -15.9071*** | 1.3153 | -12.0938 | 0.0000 |
| Lev | -7.3698*** | 0.6749 | -10.9199 | 0.0000 |
| High | 2.4857*** | 0.9266 | 2.6827 | 0.0073 |
| Low | 0.4680 | 0.9369 | 0.4995 | 0.6175 |
| Year | Controlled | |||
| Obs | 2796 | |||
Note: * * *, * *, * are significant at 1%, 5% and 10% confidence levels respectively.
Table 4 shows the regression results and significance level of model (2). Before regression analysis of the model, the VIF of the model was estimated, and the mean value of VIF did not exceed 10, indicating that the multicollinearity was not serious. It is known from Table 4 that there is a positive correlation between industry competition degree (HHI) and R&D investment intensity, with a coefficient of 14.4149. And it is significant at the level of 1%, indicating that the higher the industry competition degree is, the lower the R&D investment intensity of enterprises. This is the same as Assumption 1 above, and also consistent with research conclusion of Muhammad (2020) et al. [17]. According to Schumpeter’s theory, the more competitive the industry is, the lower the R&D investment intensity of enterprises will be. The competition in the industry is not conducive to the R&D investment activities of enterprises. Because the enterprises with monopoly status in the industry not only have the demand for research and development, but also are better than other enterprises to cope with the risk of research and development failure, so the monopoly enterprises have the demand and ability to carry out research and development.
5.3.2 Impact of corporate governance on R&D investment
Table 5 Regression analysis of state holding on R&D investment
| Coef | Std. Err. | t | P>t | |
| Owner | 0.8052* | 0.4640 | 1.7351 | 0.0828 |
| Size | -0.1008 | 0.1447 | -0.6971 | 0.4858 |
| ROA | -15.9819*** | 1.3193 | -12.1143 | 0.0000 |
| Lev | -7.4828*** | 0.6766 | -11.0586 | 0.0000 |
| High | 2.4379*** | 0.9297 | 2.6224 | 0.0088 |
| Low | 0.7246 | 0.9378 | 0.7727 | 0.4398 |
| Year | Controlled | |||
| Obs | 2796 | |||
Note: * * *, * *, * are significant at 1%, 5% and 10% confidence levels respectively.
Table 6 Regression analysis of the concurrency of chairman and general manager on the R&D investment
| Coef | Std. Err. | t | P>t | |
| Dual | 0.5627*** | 0.2030 | 2.7717 | 0.0056 |
| Size | -0.0369 | 0.1454 | -0.2541 | 0.7994 |
| ROA | -16.1117*** | 1.3186 | -12.2186 | 0.0000 |
| Lev | -7.5872*** | 0.6757 | -11.2293 | 0.0000 |
| High | 2.5769*** | 0.9294 | 2.7728 | 0.0056 |
| Low | 0.8928 | 0.9382 | 0.9517 | 0.3413 |
| Year | Controlled | |||
| Obs | 2796 | |||
Note: * * *, * *, * are significant at 1%, 5% and 10% confidence levels respectively.
Table 5 corresponds to the regression results of model (3) and its significance level. Also, before the regression analysis of the model, the VIF of the model was estimated. The mean VIF did not exceed 10, indicating that multicollinearity was not serious. The empirical results show that the regression coefficient between the state holding status and the intensity of enterprise R&D investment in model (3) is 0.8052 and is significantly positively correlated at the 10% level, which basically verifies the correctness of Assumption 2. This indicates that when the enterprise is state-owned, its administrative ability in R&D innovation is brought into play, which reduces the possibility of the short-sighted behavior of enterprise managers, and thus improves the R&D investment of enterprises.
Model (4) investigates the effect of the chairman also being the general manager on R&D investment, and Table 6 shows the regression results and significance levels of model (4). Again, before regression analysis of the model, the VIF of the model was estimated, and the mean value did not exceed 10, indicating that the multicollinearity was not serious. As can be seen from the table, the regression coefficient between the two positions integrated and R&D investment is 0.5627, which is significantly positive at the 1% level. The regression results verify the correctness of Assumption 3, which states that the combination of two positions can promote R&D investment activities. This indicates that when the two position are combined, the manager is more motivated to defend the interests of the company out of a sense of responsibility and accomplishment, and it also contributes to the R&D investment of the company.
5.3.3 Regulatory effect of industry competition on the relationship between corporate governance and R&D investment
This section mainly studies the regulatory effect of industry competition on the relationship between state-owned holding, integration of two positions and R&D investment. This paper refers to Sharma (1981)’s study on regulatory variables [18], that is, when the interaction between external governance and internal governance is significantly related, external governance is also significant with the intensity of R&D investment, and there is a semi or pure regulatory effect. When the interaction between the two governance methods is not significant, and external governance is significantly related to R&D investment, then there is no regulatory effect, on the contrary, there is a homogeneous regulatory effect.
Table 7 Regulatory effect of industry competition on the relationship between state holding and R&D investment
| Coef | Std. Err. | t | P>t | |
| HHI | 14.2993*** | 3.2077 | 4.4578 | 0.0000 |
| Owner | 0.1821 | 0.7647 | 0.2382 | 0.8117 |
| HHI*Owner | 38.5907 | 35.3230 | 1.0925 | 0.2747 |
| Size | -0.0346 | 0.1449 | -0.2387 | 0.8113 |
| ROA | -15.8817*** | 1.3148 | -12.0792 | 0.0000 |
| Lev | -7.3305*** | 0.6755 | -10.8522 | 0.0000 |
| High | 2.4488*** | 0.9264 | 2.6435 | 0.0083 |
| Low | 0.4270 | 0.9367 | 0.4558 | 0.6485 |
| Year | Controlled | |||
| Obs | 2796 | |||
Note: * * *, * *, * are significant at 1%, 5% and 10% confidence levels respectively.
Table 8 Regulatory effect of industry competition on the relationship between the concurrent role of chairman and general manager and R&D investment
| HHI | 18.0086*** | 4.5548 | 3.9538 | 0.0001 | |
| Dual | 0.7059*** | 0.2396 | 2.9468 | 0.0032 | |
| HHI* Dual | -6.6731 | 6.0532 | -1.1024 | 0.2704 | |
| Size | 0.0211 | 0.1455 | 0.1449 | 0.8848 | |
| ROA | -15.9620*** | 1.3150 | -12.1387 | 0.0000 | |
| Lev | -7.3924*** | 0.6748 | -10.9547 | 0.0000 | |
| High | 2.6021*** | 0.9262 | 2.8094 | 0.0050 | |
| Low | 0.6080 | 0.9371 | 0.6488 | 0.5165 | |
| Year | Controlled | ||||
| Obs | 2796 | ||||
Note: * * *, * *, * are significant at 1%, 5% and 10% confidence levels respectively.
Table 7 shows the regression results and significance level of model (5). Also, before the regression analysis of the model, the VIF of the model was estimated. The mean VIF did not exceed 10, indicating that multicollinearity was not serious. From the regression results, it can be seen that the regression coefficient between the industry competition degree and the cross term coefficient (HHI * Owner) of state-owned holdings and the intensity of R&D investment is 38.5907, but not significant. And the industry competition degree is positively correlated with the intensity of R&D investment, with the correlation coefficient of 14.2993, indicating that the industry competition degree has no regulatory effect on the relationship between state-owned holdings and R&D investment, which is consistent with Assumption 4. This also shows that industry competition as an external governance means is not feasible to try to affect the relationship between the nature of equity and R&D investment.
The regression results and significance level of model (6) are shown in Table 8. Also, before the regression analysis of the model, the VIF of the model was estimated. The mean VIF did not exceed 10, indicating that multicollinearity was not serious. The regression coefficient between the integration of the two positions and the cross item coefficient of industry competition (HHI * Dual) and the intensity of R&D investment is -6.6731, but it is not significant. And the degree of industry competition is positively correlated with the intensity of R&D investment, with the correlation coefficient of 18.0086, indicating that the degree of industry competition has no regulatory effect on the relationship between the integrated position and R&D investment. Assumption 5 has not been verified. This shows that when the enterprise is in fierce industry competition, which will not have a regulatory effect on the relationship between the integration of two roles and R&D investment, that is, the industry competition as an external governance mode will not affect the relationship between the two sides. This conclusion shows that the influence of directors’ power on the R&D investment will not change due to the industry competition.
5.4 Robustness test
In the previous multiple regression analysis, this paper verified the relationship between industry competition, internal governance and R&D investment intensity. In order to ensure the rationality and reliability of the research results in this paper, it has changed the measurement standard of industry competition, and then conducted a new empirical study to test whether the previous research results are accurate.
In this paper, the Herfindahl index is selected to measure the competition intensity of the industry in which the enterprises are located. In order to test the robustness of the empirical study, this paper uses the sum of the market share of the top 10 enterprises in the industry, that is, the industry concentration (CR10), as the substitute variable of the Herfindahl index (HHI) to re-verify the relationship between the industry competition and internal governance and R&D investment. Then use model (2), model (5) and model (6) to regress the experimental data again, and observe whether the results are consistent with those before changing variables.
Table 9 Impact of industry concentration on R&D investment
| Coef | Std. Err. | t | P>t | |
| CR10 | 4.6184*** | 0.9083 | 5.0847 | 0.0000 |
| Size | -0.0181 | 0.1444 | -0.1255 | 0.9002 |
| ROA | -15.8160*** | 1.3144 | -12.0332 | 0.0000 |
| Lev | -7.4047*** | 0.6737 | -10.9910 | 0.0000 |
| High | 2.6225*** | 0.9261 | 2.8318 | 0.0047 |
| Low | 0.5271 | 0.9349 | 0.5638 | 0.5730 |
| Year | Controlled | |||
| Obs | 2796 | |||
Note: * * *, * *, * are significant at 1%, 5% and 10% confidence levels respectively.
Table 10 Regulatory effect of industry concentration on the relationship between state holding and R&D investment
| Coef | Std. Err. | t | P>t | |
| CR10 | 4.5446*** | 0.9152 | 4.9658 | 0.0000 |
| Owner | -0.5301 | 1.8132 | -0.2924 | 0.7700 |
| CR10* Owner | 4.7573 | 6.1495 | 0.7736 | 0.4392 |
| Szie | -0.0287*** | 0.1447 | -0.1983 | 0.8428 |
| ROA | -15.7920*** | 1.3140 | -12.0181 | 0.0000 |
| Lev | -7.3640 | 0.6744 | -10.9191 | 0.0000 |
| High | 2.5837*** | 0.9260 | 2.7901 | 0.0053 |
| Low | 0.4918 | 0.9348 | 0.5261 | 0.5989 |
| Year | Controlled | |||
| Obs | 2796 | |||
Note: * * *, * *, * are significant at 1%, 5% and 10% confidence levels respectively.
Table 11 Regulatory effect of industry concentration on the relationship between the position concurrency and R&D investment
| Coef | Std. Err. | t | P>t | |
| CR10 | 4.9159*** | 1.1513 | 4.2699 | 0.0000 |
| Dual | 0.7630 | 0.5456 | 1.3985 | 0.1621 |
| CR10* Dual | -0.6278 | 1.7240 | -0.3642 | 0.7158 |
| Size | 0.0318 | 0.1454 | 0.2186 | 0.8270 |
| ROA | -15.9089*** | 1.3139 | -12.1085 | 0.0000 |
| Lev | -7.4487*** | 0.6736 | -11.0586 | 0.0000 |
| High | 2.7316*** | 0.9258 | 2.9505 | 0.0032 |
| Low | 0.6701 | 0.9352 | 0.7166 | 0.4737 |
| Year | Controlled | |||
| Obs | 2796 | |||
Note: * * *, * *, * are significant at 1%, 5% and 10% confidence levels respectively.
From Table 9, Table 10 and Table 11, we can see that after replacing the HHI with CR10, the industry concentration ratio has a significant positive correlation with the R&D at the level of 1%. The interaction coefficient between industry concentration and state-owned holding on R&D investment is positive, but not significant, and industry concentration is significantly positively correlated with R&D investment intensity. The interaction coefficient of industry concentration and the concurrency of two positions on R&D investment is negative, but not significant, and the industry concentration is significantly positively correlated with the intensity of R&D investment. After replacing the new measurement method, the results of using CR10 and HHI to represent the degree of industry competition are basically consistent. We can basically confirm that the results of robustness test are basically consistent with the previous regression results. The results show that the conclusions of this study are robust.
Chapter 6 Research Conclusions and Suggestions
6.1 Research conclusion
This paper finally draws the following conclusions through analysis and research:
First, the fierce industry competition is not conducive to the R&D investment of enterprises. When the enterprises in the market have not formed a certain scale and cannot achieve monopoly, enterprises will pay more attention to their own survival problems and will not or cannot make R&D investment.
Second, state-owned holding can promote the R&D investment of Chinese enterprises. As the lifeblood of the national economy, state-owned enterprises are more risk resistant than non-state-owned enterprises, at the same time, the former can also obtain more support from national policies. So state-owned enterprises can make more R&D investment than non-state-owned enterprises.
Third, the separation of the chairman and the general manager will inhibit the R&D investment of the enterprise. When the chairman concurrently serves as the general manager, the decisions made by the management will be more comprehensive, and the board of directors will be able to participate more in the company affairs, so as to consider more for the long-term development of the company, avoid the short-sighted behavior of “He who is not in a particular position has nothing to do with plans for administration of its duties.”, and further conduct more R&D activities to improve company’s competitiveness in the industry.
Fourth, the degree of industry competition has no regulatory effect on the relationship between some corporate governance and R&D investment. To be specific, the it will not affect the relationship between the nature of the equity or the integration of two positions and R&D investment, which basically shows that external governance cannot affect the relationship between the internal governance mechanism and the company’s investment decisions under the background of imperfection of Chinese governance mechanism. And to some extent, it also indicates that under the current Chinese market environment, The R&D investment of enterprises is more to meet the needs of high-tech enterprises than to make corresponding investment according to market conditions.
6.2 Relevant suggestions
Based on the research conclusion, the following suggestions are put forward:
First, from the perspective of enterprises, they should attach importance to corporate governance. Because now external competition cannot affect the decision-making of enterprises as an external governance mechanism in China, and enterprises can only restrict the agency behavior of senior executives by constantly improving the internal governance mechanism.
Second, from the perspective of the government, it should pay close attention to the competition situation of various industries, give full play to the government’s macroeconomic regulation, and ensure that the level of industry competition is in a state that can promote the R&D investment activities of enterprises.
Third, from the perspective of investors, when investing in enterprises in different industries, the focus should also be slightly different. For example, when investing in a company with a monopoly position in the industry, they should pay attention to the company’s R&D investment and its subsequent impact, so as to reasonably predict the company’s future development and make a correct investment decision.
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