Agency models in different stages of CEO tenure: The effects of stock options and board independence on R&D investment

This study examines how R&D investment is shaped by governance devices. Combining the two agency models of limited competence and managerial opportunism, it suggests that governance devices exert differing effects, in early vs. later stages of CEO tenure. Early in CEO tenure, R&D investment is reduced by stock options and board independence, whereas in later stages these effects reverse: R&D investment is enhanced by stock options and board independence. An empirical test on a sample of U.S. companies provides support for the hypothesized effects. For policy makers, this study implies that R&D investment can be enhanced by setting rules and standards of good governance that take into account CEO time in office and firm context.