Corporate Governance and Innovation : Theory and Evidence
By Krishnamurthy Subramanian, Haresh Sapra, Ajay Subramanian
Journal of Financial and Quantitative Analysis | August 2014
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http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=9530452&fulltextType=RA&fileId=S002210901400060X
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Subramanian, Krishnamurthy., Sapra, Haresh., Subramanian, Ajay. Corporate Governance and Innovation : Theory and Evidence Journal of Financial and Quantitative Analysis http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=9530452&fulltextType=RA&fileId=S002210901400060X.
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Journal of Financial and Quantitative Analysis, 2014
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Abstract
We develop a theory to show how external and internal corporate governance mechanisms affect innovation. We show that there is a U-shaped relation between innovation and external takeover pressure, which arises from the interaction between expected takeover premia and private benefits of control. We show strong empirical support for the predicted relation using ex ante and ex post innovation measures. We exploit the variation in takeover pressure created by the passage of anti-takeover laws across different states. Innovation is fostered either by an unhindered market for corporate control, or by anti-takeover laws that are severe enough to effectively deter takeovers.

K. V. Subramanian is a Professor of Finance (currently on leave) at the Indian School of Business (ISB). He has served as an Executive Director at the International Monetary Fund and was the 17th Chief Economic Advisor to the Government of India from 2018 to 2021.

As Chief Economic Advisor, Professor Subramanian conceptualised India’s economic policy during the once-in-a-century COVID-19 pandemic. By correctly identifying COVID-19 as a huge supply-side shock, Professor Subramanian balanced supply- and demand-side measures, transformed fiscal policy to focus on public capital expenditure, and initiated path-breaking reforms to address structural problems. His foresight and vision enabled the Indian economy to emerge with high growth and strong macro fundamentals despite the Ukraine war following the pandemic.

His policy ideas drew on the path-breaking Economic Surveys. He authored Ethical Wealth Creation for a Prosperous India (2019-20), a Strategic Blueprint for India to Become a $5 Trillion Economy (2018-19), and the post-COVID-19 economy using public capital expenditures in infrastructure and healthcare to further counter-cyclical fiscal policy (2020-21). Acknowledging his contributions, the Hon’ble Prime Minister of India, Shri. Narendra Modi, praised his “academic brilliance, unique perspectives on economic and policy matters, and reformatory zeal.”

Professor Subramanian has been conferred the Distinguished Alumnus award by both his alma maters at IIT Kanpur and IIM Calcutta. He holds a PhD from the University of Chicago. His research spanning banking, law and finance, innovation and economic growth, and corporate governance has been published in the world's leading academic journals.

Krishnamurthy Subramanian
Krishnamurthy Subramanian