Corporate governance and R&D investment: does firm size matter?

This paper seeks to contribute to the burgeoning research on corporate governance and research and development (R&D) by exploring the contingent role of firm size and its crucial role in defining conditions for competitive advantage. Using a generalised method of moments (GMM) estimator and a sample of U.S. publicly traded pharmaceutical firms from 2009 to 2018, we test several hypotheses related to the role of firm size in the relationship between corporate governance and R&D investment. Our findings show the importance of institutional context and point out the configurations of governance practices that lead to high and low levels of R&D investment. We find that the effect of corporate governance on R&D investment is contingent upon firm size. Larger and smaller firms differ in building and employing their strategic decisions. Our results indicate that larger firms facilitate R&D investment than smaller firms, showing that these firms are more prone to seek variation and visibility for accessing better resources. Our findings are relevant for firms aiming to implement strong governance mechanisms to track their R&D activities and for policymakers interested in promoting R&D investment.