Revisiting the influence of earnings pressure on innovation: a contingency perspective

Purpose Building on the behavioral agency model, this study aims to investigate the influence of earnings pressure on innovation investment within a contingent framework of competitive intensity and chief executive officer (CEO) power. This study also examines the configurational effect of two moderators to clarify the role of internal and external constraints as additional corporate governance mechanisms. Design/methodology/approach This study utilizes STATA 17 software to conduct panel regressions with fixed effects for a firm-level sample in a typical Asia-Pacific context, specifically Taiwanese electronics firms from 2002 to 2018. Additionally, this study performs several robustness tests to ensure the reliability of the findings. Findings This study confirms a conservative stance toward innovation investment when firms face earnings pressure. Albeit this study introduces competitive intensity and CEO power as moderators, findings suggest that their roles differ – enhancing and mitigating the main relationship, respectively. By examining their configuration, the study proposes that CEO power outweighs competitive intensity in its moderating role. Practical implications The findings provide critical implications for managers in determining corporate responses when firms face earnings pressure. In addition, external and internal conditions impose additional layers on making decisions. Originality/value This study contributes to the existing literature by employing a behavioral agency model to examine the negative impact of earnings pressure on long-term corporate development. This study also underlines the importance of examining contingencies to accumulate a more nuanced understanding of how earnings pressure shapes corporate decisions.