The impact of financial feedback on the innovative activity of companies: the moderating role of corporate governance quality

This research analyzes performance feedback and corporate innovative activity in the context of corporate governance quality. The research goal is as follows: to examine the influence of social and historical performance feedback on R&D intensity of a firm, and to determine whether governance quality strengthens interconnection between performance feedback and R&D intensity. The sample consists of panel data on 283 South-Eastern Asian public companies from the manufacturing industry sector. The sample covers seven countries during the time period from 2015 to 2020, providing 1698 firm-year observations. It was discovered that sample firms are sensitive to positive and negative social performance feedback and do not respond to historical feedback. A comparative analysis between types of feedback has shown that firms value social feedback more than historical feedback. It was also established that higher corporate governance quality decreases performance feedback sensitivity among firms, which weakens the relationship between the feedback and innovative activity. Firms with weak governance systems value social performance feedback more than companies with mature governance. The study of these types of feedback in combination with the quality of corporate governance can be used by company executives in corporate strategic planning and operational decision-making. CEOs should be ready to use performance feedback information in addition to their personal judgment.