Promoters' control and R&D investments: evidence from the Indian pharmaceutical industry

Promoters play a crucial role in corporate innovation; they may encourage innovation for the long-term growth of the company or may reduce it to avoid risk. Based on conflicting perspectives of stewardship theory and principal-principal agency theory, the study aims to examine the impact of promoter ownership on R&D investments in a company and whether a high ownership stake or management position(s) held by promoters influences the said relationship. The paper empirically tests the hypothesis in a strongly balanced panel data set of 41 R&D-intensive Indian listed pharmaceutical companies over ten years from 2011 to 2020 using the fixed-effect regression model and sub-sample regressions. The results indicate a stronger negative effect of promoter controlling stake on R&D investments in high promoter-controlled firms, especially when the promoter holds the position of CEO and chairman. It suggests that R&D-intensive pharmaceutical companies reduce promoters' control in management to enhance monitoring of strategic decisions.