R&D Investment, Governance and Management Entrenchment in French Companies Listed in SBF250

Abstract

This study seeks to explain the management entrenchment by investment of free cash flo w (FCF) in research and development (R&D), debt, market structure (internal or external), the multinational nature of fir ms and the characteristics of the board of directors using a sample of 128 groups of French companies listed on the SBF250 between 2003 and 2008. The results show that investment in R&D helps the managers to enhance their authority with respect to the shareholders. The multinational nature of the fir m exerts a significant effect on the entrenchment strategy. Manager replaces the internal capital market to the outside market to avoid scrutiny by creditors. We also find an insignificant effect ex erted by the debt on the management entrenchment. Finally, we find the absence of a significant relationship between management entrenchment, as measured by discretionary accruals and seniority of the officers, and the char acteristics of the board of directors.