Corporate Governance and Innovation: A Survey

The traditional economics of innovation, inspired by Schumpeter and more recentadvances on his work, seem unable to explain why firms with similar external conditions may showgreatly different performance in innovation. Contrastingly, the literature on corporate governanceprovides some useful insights for understanding corporate innovation activity, to the extent thatsuch literature examines the economic effects of different modes of coordination between firmmembers. The process through which individuals integrate their human and physical resourceswithin the firm is central to the dynamics of corporate innovation. This paper provides the firstsurvey of the literature on this issue. We start by discussing how various theoretical approachesto the analysis of the firm deal with technological innovation. We then describe three mainchannels – corporate ownership, corporate finance and labour – through which a system of corporategovernance shapes a firm’s innovation activity. Finally, we examine the relationship betweencountry-level institutional settings, national patterns of corporate governance and the aggregateinnovation activity of corporations. We conclude by suggesting that future research should focusmore deeply on the interrelation between the various dimensions of corporate governance and ontheir joint effect on firm innovation.