R&D-driven companies’ profitability: risk management from a corporate governance perspective

What the paper says

Purpose Investments in research and development (R&D) are crucial to gain competitive advantages and create sustainable value for companies. However, R&D initiatives are complex, risky and subject to uncertain outcomes. The objective of this study is to investigate how variables related to corporate governance can help reduce such risks by aligning innovation strategies and financial performance. Design/methodology/approach To examine the relationship between variables related to board members' personal attributes and board characteristics and R&D-driven profitability, this research employs a generalized least squares regression model with data from 2012 to 2022, considering listed and unlisted companies included in the “EU Industrial R&D Investment Scoreboard.” Findings The results reveal that the presence of female directors, especially when there are at least three women on the board and they hold executive roles, together with older board members, positively influences the ability of companies to translate their commitment to innovation into operating profits. In contrast, larger boards and longer tenures of directors can hinder the success of corporate innovation strategies, contributing to increased related risks. Furthermore, the effectiveness of gender quotas in promoting corporate innovation is also questioned. Originality/value This study provides a better understanding of how innovation can boost profitability while enhancing competitive advantage. Unlike previous research that focused on external factors, this research emphasizes board composition and directors’ personal attributes as key drivers of strategic decisions and resource allocation. This research sheds light on the factors that allow R&D investments to become a sustainable profit driver, essential for companies’ long-term growth.