Long CEO tenure, independent directors and R&D knowledge stock: the moderating effect of performance shortfalls

Purpose This study aims to examine why firms differ in levels of research and development (R&D) knowledge stock by testing multiple theories of direct and interaction effects of long chief executive officer (CEO) tenure and independent directors on R&D knowledge stock. Additionally, it tests the moderating effect of performance shortfalls on these relationships. Design/methodology/approach The multiple theories are tested on a sample of 215 FTSE 350 listed firms, using a panel regression and system generalized method of moments estimation. Findings The results indicate that a firm with long CEO tenure reduced R&D knowledge stock, whereas independent directors is associated with higher R&D knowledge stock. Firms increased R&D knowledge stock when long CEO tenure interact with independent directors. Firms reduced R&D knowledge stock when performance shortfalls interacted with long CEO tenure. Firms increased R&D knowledge stock when performance shortfall interacted with long CEO tenure and independent directors. Practical implications The findings have implications for CEO succession planning and dynamics of board–CEO relationships. Regulators seeking to promote innovation-driven growth may use these findings to develop governance codes that incentivize the appointment of directors who can support knowledge-intensive strategies. Policymakers might consider offering incentives, such as R&D tax credits, to support the innovation advocacy of independent directors and bolster innovation in firms with long-tenured CEOs. Originality/value This study reconciles competing governance theories with performance feedback theory, thereby contributing to multiple literatures and enrich understanding of the micro-foundations of firms’ R&D decisions. The study thus offers a valuable expansion to corporate governance literature.