Too much of a good thing: Board monitoring and R&D investments

Previous studies report inconsistent findings regarding how board monitoring influences firms' research and development (R&D) intensity. This study uses agency theory and resource dependence theory to argue that there is an inverted U-shaped relationship between these two constructs. By using board capital theory, the present study also postulates that this curvilinear relationship varies depending on the firm- and industry-specific human capital of outside directors. 467 firm-year observations collected from a randomly selected sample of large public firms from high-tech industries between 2005 and 2010 largely provide empirical support for these arguments. The findings contribute to the corporate governance literature by refining the understanding of the costs and benefits associated with board monitoring. The curvilinear relationship reported herein may also help reconcile prior inconsistent findings. The results also contribute to board capital theory by emphasizing the role of outside directors' firm-specific human capital in the context of R&D investments.