UCL School of Management is delighted to welcome Professor Kenneth Huang, National University of Singapore, to host a research seminar discussing Public governance, corporate governance, and firm innovation:
An examination of state-owned enterprises.

Abstract

We develop a novel theoretical framework to examine how governance mechanisms at different levels affect the quantity and the novelty of the innovation developed by state-owned enterprises (SOEs). We first examine how corporate governance tools that regulate agents, including incentive alignment and monitoring, assist firms in reducing the moral hazard that is characterized by agents’ pursuing the quantity of innovation at the expense of the novelty. We then argue that the governance tools that regulate the behavior of the principal of SOEs—i.e., the public governance of the state (which is manifested as government accountability)—also reduce this moral hazard in innovation. Moreover, we argue that higher-quality public governance and more-effective corporate governance act as complements to further reduce such a moral hazard. We examine the hypotheses in the context of Chinese state-owned enterprises (SOEs) as they responded to the state’s implementation of pro- innovation policies, and find empirical support for our theory. This study generates new insights on how governance tools reduce moral hazards in innovation, and contributes to the theory of governance as well as the theories of innovation management.