Research and development spending in the pharmaceutical industry: Does board gender diversity matter?

Abstract

The focus of this paper is twofold; the primary objective is investigating the impact of board gender diversity on firms’ research and development (R&D) investment as an innovation driver. The secondary objective is looking at R&D expenditure from an opportunistic earnings management practice, suggesting that this expenditure could be used as a real earnings management technique to enhance firms’ earnings. The study sample comprised all pharmaceutical firms listed in the Bloomberg database between the years 2018 and 2021. The study’s findings indicated that the presence of female directors is correlated with greater innovation as firms are prone to invest more in R&D projects, hence, practising their strategic role effectively. Furthermore, a significant negative relationship is found between the presence of female directors and real earnings management practices, indicating that female directors would effectively contribute to board monitoring and as a result, the managerial opportunistic practices are eliminated. Our findings remain robust after using alternative econometric methods to address the endogeneity issue and applying alternative gender diversity proxies. This paper contributes to the literature by providing additional insight into the vague relationship between female directors and R&D spending by specifically looking into this relationship through different theoretical lenses: upper echelons theory and agency theory. The findings of the study are valuable for both pharmaceutical firms and policymakers interested in boosting innovation investment and improving monitoring mechanisms within a corporate governance structure.

Keywords

• Innovation
• Earnings management
• Research and development
• Gender diversity
• Corporate governance
• Board of directors