Examining governance-innovation relationship in the high-tech industries: monitoring, incentive and a fit with strategic posture

Departing from the usual debates regarding the superiority of one governance structure over another, this study aims to complement the prior institutional approach by addressing how a firm's internal governance, via board competence and managerial incentives, shapes innovation performance. In a sample of 178 Taiwanese firms in the high-tech industries, the study sets out to examine the innovation-enhancing effects of the firm-level governance arrangements prescribed by agency theory. The results show that the effective governance, characterised by vigilant control through a competent board and the incentives of managers through equity ownership, are conducive to the desired and valued outcomes of innovation by aligning the risk differential between principals and agents. This universal relationship is further extended to a contingency perspective that innovation can be more significantly achieved by managerial risk readiness through a tight coupling of internal governance and the correspondingly appropriate strategy profile. The findings stress that governance and a clear posture of differentiation in high-tech environments are, arguably, multiple bases on which innovation is sought.