The effects of adopting shareholder value metric control and reward sysems on firm investment in research and development

This research examines the effects on firm investment in R&D of adopting control and reward systems that are based on measures of shareholder value. It develops a theoretical model that integrates behavioral perspectives on risk with classic agency theory, and leads to four sets of hypothesized relationships about the firms resource allocation to R&D, and the R&D portfolio balance between research spending and development spending. It uses primary data to operationalize adoption of such systems and OLS regression analysis to test hypotheses. The study provides evidence that adoption of shareholder value metric systems has a positive influence on resource allocation to R&D, particularly as such systems are adopted at successively lower organizational levels. Additionally, the study provides descriptive evidence regarding the prevalence of shareholder value metric (SVM) systems as well as the implementation of specific adoption practices.