Finance Research Letters 58 (2023) 104522

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Finance Research Letters

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Does age similarity between board chair and CEO matter for R&D
investments? Evidence from China
Ala’a Azzam a, Salem Alhababsah b, *
a
School of Business, The University of Jordan, Amman, Jordan
b
King Talal School of Business Technology, Princess Sumaya University For Technology, Amman, Jordan

A R T I C L E I N F O A B S T R A C T

Keywords: Psychology literature suggests that the similarity in age between individuals can influence their
Age similarity communication style, interactions, and information exchange. Given that the relationship be­
Board chair tween board chairperson (Chair) and Chief Executive Officer (CEO) involves extensive in­
Chair age
teractions and information-sharing with the aim to maintain shareholders’ interests, this study
CEO age
R&D
seeks an answer as to whether age similarity between Chair and CEO affects R&D investment.
Using data from A-share Chinese companies, we find that a similarity in age between the Chair
and CEO had a negative impact on R&D intensity. Beyond its valuable contribution to the
literature, the finding of this study is significant and relevant for practical applications, as it
highlights the importance of considering the age gap between the Chair and CEO for companies
looking to enhance corporate governance and maintain innovation.

1. Introduction

Board of directors and CEO play a crucial role in shaping corporate strategy (Zhou et al., 2020; Crossland et al., 2014; Westphal and
Fredrickson, 2001). Investment in Research and Development (R&D) is a vital part of a company’s strategy as it facilitates the
introduction of new products and processes, thereby improving the firm’s growth and sustainability (Guellec and de La Potterie, 2004).
Unlike other long-term investments, R&D expenditures typically lead to new technology or products, but they can be risky and take
years to yield profits (or losses) (Chen et al., 2014). Consequently, this study focuses on R&D spending as the most commonly used
proxy for innovative efforts in existing literature (e.g., Kor, 2006; Kumar, and Li, 2016). The study aims to explore R&D spending in
China, where 2.18 % of the country’s GDP was allocated to R&D in 2018 (UNESCO, 2018), and where there has been a 30 % annual
increase in applications to the State Intellectual Property Office (SIPO) from 2001 to 2011. With initiatives like the "Made in China
2025″ plan, the China has signaled its intention to transition from being the "world’s factory" to becoming a global innovation leader
(Li, 2018).
The relationship between board of directors and CEO involves frequent interactions and sharing of information with the aim to
safeguard shareholders’ wealth. While the relationship between R&D expenditure and long-term growth is far from simple, it is
challenging for companies to establish efficient R&D capabilities without effective supervision and direction. In other words, while the
CEO bears direct responsibility and accountability for R&D expenditure, the board of directors has a crucial role in ensuring that the
CEO’s actions align with the interests of the shareholders (Dalziel et al., 2011).

* Corresponding author.
E-mail address: s.alhababsah@psut.edu.jo (S. Alhababsah).

https://doi.org/10.1016/j.frl.2023.104522
Received 27 July 2023; Received in revised form 22 September 2023; Accepted 26 September 2023
Available online 29 September 2023
1544-6123/© 2023 Elsevier Inc. All rights reserved.
A. Azzam and S. Alhababsah Finance Research Letters 58 (2023) 104522

Psychology literature suggests that the similarity in age between individuals has an impact on how they communicate, interact, and
exchange information (Zenger and Lawrence, 1989; McPherson et al., 2001; Van Knippenberg and Schippers, 2007; Standifer et al.,
2013). In the same vein, the organizational demography perspective (Pfeffer, 1983) recommends that one should look not only at the
effect of each demographic attribute in isolation (e.g. CEO age (Barker and Mueller, 2002) or Chair age Waelchli and Zeller, 2013), but
also at the demographic distance of individuals from one another, which might have a significant impact on their behavior.
Motivated by both corporate governance and psychology literature, we examine whether age similarity between the person who
leads the board (board chair, Chair1 hereinafter) and the CEO affects R&D investment. We focus on age similarity because age
(alongside gender) is the most noticeable demographic characteristic, making apparent age (dis)similarity among individuals easy to
detect (Standifer et al., 2013). The literature on social identity, specifically the works of Tajfel and Turner (1985), identifies age cohort
as a significant basis for social categorization. This categorization has a noticeable effect on individuals’ values, cognitive styles,
information processing, and consequently, their decision-making (Taylor, 1975; Hambrick and Mason, 1984; Serfling, 2014) .2
This research is centered on the role of the Chair for several reasons. Firstly, the Chair leads the board and is accountable for
ensuring its effectiveness in guiding the firm (The China Securities Regulatory Commission, 2001). The Chair acts as a crucial link
between non-executive directors and the CEO, promoting constructive board relationships and ensuring that directors receive accurate
and timely information (Kakabadse et al., 2010; Azzam and Alhababsah, 2022), thereby playing a significant role in effective board
governance. Thirdly, despite its importance, the role of the Chair has not been thoroughly investigated in the literature, mainly because
most studies are conducted in the US, where CEO role duality remains dominant (Banerjee et al., 2020; Krause, 2017; Withers and
Fitza, 2017). As a result, there is a growing call for more attention to be given to the Chair’s role not only in corporate governance but
also in strategic decision-making (Banerjee et al., 2020). Therefore, the research aims to address this gap in the literature. Finally, the
Chair in China holds considerable legal power and is often the de facto top manager of the firm. In support of this argument Krause
et al. (2019) found that Chairs in China have a more substantial impact on firm performance than those in the US and the UK.
Drawing on psychology literature (e.g. Hambrick and Mason, 1984; Serfling, 2014; Tajfel and Turner, 1985; Tsui and O’Reilly,
1989), agency theory (Jensen and Meckling, 1976) and resource dependence theory (Pfeffer and Salancik, 1978), we argue that
Chair–CEO age similarity might have an impact on R&D investment. On one hand, age similarity facilitates communication among
individuals, enhances personal connections, and leads to more mutual trust and subsequent efficient information exchange
(McPherson et al., 2001; Chatman and Flynn, 2001). Thus, Chair–CEO age similarity might improve R&D spending through increasing
the willingness of the CEO to share information with the Chair and, similarly, motivating the Chair to provide quality advice to the
CEO. Efficient information sharing between these two persons will reduce information asymmetry leading the Chair to focus on
strategic rather than financial monitoring (Hoskisson et al., 2002). Furthermore, Chair–CEO age similarity might increase the Chair’s
support to the CEO which could be in a form of tolerance for innovation failure (Manso, 2011; Holmstrom, 1989). Such support can
alleviate CEOs’ risk aversion in investment decisions, thereby increase their willingness to engage in desirable risky R&D initiatives
(Westphal, 1999). Chair–CEO mutual trust can increase the CEO’s advice-seeking behavior, and also encourage the Chair to provide
quality advice and sufficient resources.
On the other hand, the age similarity might result in a lower level of cognitive conflict (Amason and Schweiger, 1994) and biased
monitoring (Dalton et al., 1998) which could lead to unwarranted trust between Chair and CEO. Where effective monitoring is
important to counter the CEO’s risk aversion concerning R&D investments, both biased monitoring and a lower level of cognitive
conflict might reduce the Chair’s willingness to exercise the required level of corporate strategy monitoring, and also hamper its ability
to discipline incompetent CEOs.
Our sample consists of A-share companies that trade on the main financial markets in China between 2009 and 2018. We find that
Chair–CEO age similarity reduces the intensity of R&D investments. This finding suggests that the dark side of Chair–CEO age simi­
larity (e.g., low cognitive conflict and weak monitoring) outweighs the bright side (e.g., better collaboration, candid information-
sharing, and better advice given to CEO by Chair). Also, our results hold when we shift the focus from the Chair to the whole
board, i.e. considering the impact of board–CEO age similarity on R&D spending.
The study has a significant contribution to both literature and practice. It is, to the authors’ knowledge, the first empirical study that
examines the impact of demographic similarity between the Chair and CEO on R&D spending decisions, thereby highlighting Chair-
CEO age similarity as a new factor that influences R&D investments. The research also adds valuable insights to the limited literature
on the Chair’s role as a vital player in corporate governance. Moreover, companies that aim to enhance corporate governance and
maintain long-term innovation may benefit from paying attention to the age gap between their Chair and CEO.
Although the focus of this study is on age similarity between Chair and CEO, we also examine whether age itself matters. We find no
evidence that R&D spending changes as the CEO becomes older. Prior studies show that older CEOs are more risk-averse, therefore
tending to cut R&D investment and shift the focus towards projects with lower risks and quicker pay-offs (Barker and Mueller, 2002).
Our finding shows, at least in the context of this study, that this does not happen, alleviating the concern over the so-called “horizon
problem” (Heyden et al., 2017) and contributing thus to practice and to mixed evidence reported in previous literature (Barker and
Mueller, 2002; Conyon and Florou, 2006).
The remainder of the paper proceeds as follows. In Section 2, we discuss the literature review and develop our hypothesis. Section 3
describes the study variables and the sample. Section 4 reports and discusses the empirical findings before Section 5 concludes.

1
We use ‘Chair’ as a gender-neutral term, which denotes either a chairman or a chairwoman.
2
The study controls for other demographic similarities such as gender, nationality, and education.

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A. Azzam and S. Alhababsah Finance Research Letters 58 (2023) 104522

2. Literature review and hypotheses development

2.1. Board (Chair)–CEO relationship and R&D investment

Previous studies have emphasized the crucial role of both CEOs (e.g. Barker and Mueller, 2002; Cho and Kim, 2017) and the board
of directors (e.g. Kor, 2006; Yoo and Sung, 2015) in the domain of R&D spending. Although CEOs are responsible for making decisions
about allocating resources and monitoring the direction of R&D spending, they often resist investing in R&D due to the high level of
uncertainty and potential for failure, which leads to little assurance that the investment will yield positive results. Even successful R&D
investments often take a long time to recoup, which has a negative impact on a firm’s short-term financial performance (David et al.,
2001; Sanders and Carpenter, 2003). It is worth mentioning that the International Accounting Standards (IASs) require firms to record
research expenditure as an expense (instead of capitalizing it) in the year in which it occurs (Chambers et al., 2003). Thus, CEOs view
these initiatives as a cost rather than as an investment.
Accordingly, while R&D investments can offer significant advantages to stakeholders, CEOs often cut back on these expenditures
due to worries about how it might adversely affect immediate fiscal results, their remuneration, and employment stability. As a result,
directors, who are considered the guardians of R&D expenditures, can play a critical role in aligning the interests of executives and
shareholders by closely monitoring R&D spending undertaken by CEOs (Kor, 2006; Le et al., 2006). Besides, vigilant directors can
remind CEOs that investing in R&D is essential for the long-term health of the company, even if it may negatively impact short-term
performance (Guldiken and Darendeli, 2016).
On the other hand, stringent monitoring by the board could potentially have adverse effects on CEOs’ risk-taking behavior and their
inclination to engage in ventures with high risks and long-term returns, such as R&D projects (Cheng, 2004; Garg, 2013). In support of
this argument, Faleye et al. (2011) provide empirical evidence showing that companies with heavily monitored top management teams
tend to allocate less resources towards R&D activities. In addition, extant research on board of directors suggests that unless executives
perceive the board as supportive, they are unlikely to undertake risky, long-term projects such as R&D initiatives. Therefore, intense
monitoring by the board can potentially undermine this perception, leading to negative impact on innovation activities (Faleye et al.,
2011). Holmstrom (2005) concurs with this notion and argues that intense monitoring can destroy the trust necessary for the CEO to
exchange relevant strategic information with directors. Consequently, CEOs who experience excessive monitoring and do not see the
board as supportive might invest less in R&D, and instead might allocate funds to other conventional less risky projects (Guldiken and
Darendeli, 2016).
Moreover, according to the perspective of resource dependence theory, advising and guiding CEOs is another avenue for the board
of directors to influence the level of R&D expenditures (Dalziel et al., 2011). One of the service roles of directors is to provide counsel
and advice to executives, as stated by Zahra and Pearce (1989). This role suggests that directors are actively involved “in the strategic
arena through advice and counsel to the CEO, by initiating their own analyses, or by suggesting alternatives” (Zahra and Pearce,1989:
298).
The relationship between directors and CEO involves ongoing collaboration and interaction in the decision-making process.
Therefore, a close (i.e. friendly) relationship between directors and CEO can promote communication and knowledge exchanges
between them which helps to discover and foster innovation activities. Hoskisson et al. (2002) and Faleye et al. (2014) argue that
better communication between CEO and the board of directors reduces information asymmetry, making the board of directors more
inclined to strategic rather than financial control.
While directors work collectively to supervise and provide counsel to management, the role of the Chair is paramount in super­
vising the CEO and making key strategic choices (Kakabadse et al., 2010; Robert, 2002. According to a recent study by Banerjee et al.
(2020), the Chair’s role in the modern day extends beyond ensuring adherence to the corporate governance system, to playing an
instrumental part in facilitating effective CEO communication for a strategic competitive edge. Occupying a vital leadership spot
within the organization and its board (Krause, 2017; Withers and Fitza, 2017), the Chair is responsible for steering board meetings and
discussions, and instituting board procedures and routines. The Chair operates as the main conduit for communication between the
CEO and the rest of the board members (Lorsch and Zelleke, 2005; Tuggle et al., 2010), while also providing an additional monitoring
check and serving as a central source of counsel for the CEO (Lorsch and Zelleke, 2005; Withers and Fitza, 2017).
In relation to China specifically, Chairs wield significant legal authority, they steer strategic decisions, and often, they are the
unspoken chief executives of the corporation (Jiang and Kim, 2015). The structure of Chinese companies is hierarchical, creating a
clear chain of command from Chairs to their staff. This high degree of power distance, a defining feature of Chinese culture, places the
Chair at the top of the team, effectively mitigating internal team conflicts and power disputes. As a result, it helps the Chair in
streamlining the team’s decision-making process and fostering group cooperation (Smith et al., 2006), which, in turn, impacts
innovative decision-making. Furthermore, Chairs generally take on various roles and possess significant influence internally and
externally (Jiang et al., 2020), which could further bolster their role in shaping R&D strategy decisions.
The relationship between the Chair and the CEO has recently attracted much attention from scholars and regulators as crucial both
to the effective functioning of the board and to the successful leadership of the organization (Banerjee et al., 2020; Cornforth and
Macmillan 2016; Morais et al., 2018). The quality of the relationship between these two persons plays an essential role in information
sharing, resource mobilization and decision-making (Wheatley, 1994; Kakabadse et al., 2010). The CEO–Chair relationship has been
described as special, even mystic, and it has been argued that the chemistry between them is a key input for relationship quality
(Kakabadse et al., 2010). A lack of chemistry (e.g. social bonding) between Chair and CEO leads the tension between them to un­
dermines the fabric of the organization (Kakabadse et al., 2010). Hence, given the above discussion, it is evident that the nature of the
relationship between the Chair and the CEO is crucial for R&D initiatives, especially in China.

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A. Azzam and S. Alhababsah Finance Research Letters 58 (2023) 104522

2.2. Age similarity effect

Psychology literature suggests that age similarity facilitates interactions among individuals and thereby enhances personal con­
nections (McPherson et al., 2001). Whether it is conscious or subconscious, “contact between similar people occurs at a higher rate
than among dissimilar people” (McPherson et al., 2001, 416), and individuals enjoy a better mutual understanding and are more
comfortable with others who share similar demographic attributes (Marsden, 1987; McPherson et al., 2001). Age is considered one of
the most noticeable demographic attributes among individuals (Standifer et al., 2013). In fact, age cohort is one of the social cate­
gorizations identified in social identity literature (Tajfel and Turner, 1985) which has an obvious impact on individuals’ values, at­
titudes, cognitive styles, information processing, and thus their decisions (Taylor, 1975; Hambrick and Mason, 1984; Serfling, 2014).
Prior studies provide evidence concerning the effect of age similarity between individuals on the likelihood of conflict and the level
of task engagement and collaboration. Earley and Mosakowski (2000); Van Knippenberg and Schippers (2007); and Standifer et al.
(2013) promote the idea that demographic differences among individuals can provoke social categorization processes (e.g. stereotypic
perceptions of dissimilar others and intergroup biases) that might decrease effective functioning and increase conflict. Zenger and
Lawrence (1989) and Chatman and Flynn (2001) provide evidence of negative relationships between demographic diversity and the
level of cooperation between individuals. These results are consistent with social categorization theory (Van Knippenberg and
Schippers, 2007) which posits that individuals build social categorizations about themselves and others with whom they interact,
resulting in more favorable attitudes toward others viewed as similar, i.e. a greater willingness to trust and collaborate with age-similar
individuals (Van Knippenberg and Schippers, 2007; Standifer et al., 2013). This theory is often particularly salient when demographic
features of the social category are easily identifiable, such as age or gender (Standifer et al., 2013; Tajfel and Turner, 1985).
Similarly, communication accommodation theory predicts that people of different generations may communicate in a way that is
biased in favor of their own age group (McCann and Giles, 2006). In the same vein, Tsui and O’Reilly (1989) propose that individuals
prefer, and respond more favorably to, contexts containing greater proportions of age-similar individuals. Age similarity leads to
greater perceptions of similarity in values and historical experiences, therefore leading to enhanced cohesion (Mehra et al., 1998).
Kahn (1990) point out that the presence of individuals who are similar in age heightens identification with each other, and thereby
contributes positively to job meaningfulness and task engagement.
However, demographic dissimilarity (similarity) might enhance (impair) individuals’ performance due to the impact of cognitive
conflict3 that may arise among them (Amason and Schweiger, 1994). Cognitive conflict can enhance decision quality because it en­
courages better cognitive understanding of the issue under consideration (Simons and Peterson, 2000) .4 Forbes and Milliken (1999,
494) argued that “the presence of disagreement and critical investigation on the board may require CEOs to explain, justify, and
possibly modify their positions on important strategic issues and to entertain alternative perspectives and courses of action. Moreover,
the existence of cognitive conflict on the board can serve to remind management of the power and role of the board and of the
importance of considering shareholder interests in the formulation of strategy even beyond the boardroom”. However, Chair–CEO
cognitive conflict is not necessarily translated to effective monitoring. It might impede the Chair from having a rigorous discussion
with the CEO and lead to a psychologically unsafe board climate, resulting in dysfunctional dynamics (Veltrop et al., 2021).

2.3. Hypothesis development

Given the discussion above on the importance of the Chair–CEO relationship and on the impact age-similarity, we argue that
Chair–CEO age similarity might affect R&D investments in different ways. On one hand, age similarity-induced benefits (such as better
communication, trust, and efficient information exchange) might improve R&D spending through increasing the willingness of the
CEO to share information with the Chair (and also through motivating the Chair to provide quality advice to the CEO). This reduces
information asymmetry, thereby making the Chair more inclined to strategic rather than financial control (Hoskisson et al., 2002), and,
as a result, encourages the CEO to invest more in R&D even if such investment harms short-term performance. Furthermore,
Chair–CEO age similarity might increase the Chair’s support to the CEO. Chair support could be in a form of tolerance for innovation
failure in the short-term (Manso, 2011; Holmstrom, 1989). Chair support could also enhance the so-called psychological safety climate
which “alleviates excessive concern about others’ reactions to actions that have the potential for embarrassment or threat”
(Edmondson, 1999, p. 355). Thus, given that CEOs typically have a concern over their employment following unfavorable financial
outcomes and unsuccessful R&D investments (Faleye et al., 2014), such Chair support can reduce their risk aversion in
decision-making and increase their willingness to engage in desirable risky R&D initiatives.
On the other hand, Chair–CEO age similarity might be detrimental to monitoring (and therefore to R&D spending) owing to biased
monitoring (Dalton et al., 1998) and the low level of cognitive conflict (Amason and Schweiger, 1994). Previous studies report that
familiarity bias threatens directors’ independence, thereby compromising the quality of monitoring (Fan et al., 2019; Fracassi and

3
Cognitive conflict is defined as "disagreements about the content of the tasks being performed, including differences in viewpoints, ideas and
opinions" (Jehn 1995, 258).
4
Previous psychology studies argue that cognitive conflict has a counterproductive effect on relationship between individuals. Cognitive conflict
can arouse negative emotions or affective conflict among individuals (Nemeth and Staw 1989), thereby lessening interpersonal collaboration among
them. Jehn (1995) and Simons and Peterson (2000) found that individuals with high levels of cognitive conflict experience lower levels of satis­
faction and express less desire to work together (e.g. persons whose ideas are criticized by others may feel that their viewpoints are not respected
and their competence is challenged, thus triggering emotional conflict).

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A. Azzam and S. Alhababsah Finance Research Letters 58 (2023) 104522

Tate, 2012; Westphal, 1999). In the setting of our study, the Chair plays an important role in aligning the interests of shareholders and
managers by effectively monitoring R&D investments made by CEOs (Banerjee et al., 2020; Kor, 2006). Effective monitoring is also
important to counter the CEO’s risk aversion concerning R&D investments. Thus, favoritism bias which stems from age similarity
might lead to unwarranted trust between chair and CEO and, therefore, could impede the Chair from exercising the required level of
corporate strategy monitoring, particularly concerning R&D spending.
Moreover, Forbes and Milliken (1999) and McPherson et al. (2001) report that Chair–CEO age dissimilarity fosters the chair’s
cognitive independence and gives rise to cognitive conflict. This implies that more age similarity could lead to less intensive moni­
toring in the form of less scrutinizing and critical judgment of the CEO’s decisions. Less scrutinizing reduces the need of the CEO to
provide more information to convince the Chair and the board, which therefore adversely affects monitoring effectiveness (Adams and
Ferreira, 2007). In support of this notion, Goergen et al. (2015) conclude that the cognitive conflict triggered by Chair–CEO age
difference results in better monitoring, thereby increasing firm value.
From the view of resource dependence theory, Westphal (1999) and Johnson et al. (1996) argue that directors – who are viewed as
providers of resources rather than evaluators of management – can extend their involvement beyond monitoring to provide ongoing
advice and counsel on strategic issues (e.g. R&D initiatives). Thus, Chair–CEO age similarity might increase a CEO’s advice-seeking
behavior by boosting his or her trust in the Chair’s support, and also enhance the chair’s advising role by encouraging him/her to
provide advice and sufficient resources.
To the best of our knowledge, this is the first study to examine how demographic similarities (age similarity in particular) between
Chair and CEO shape R&D spending. However, closer to our work are Kang et al. (2018); Faleye et al. (2014), and Rose et al. (2014) –
all from the US context. Kang et al. (2018) report that social connections between directors and CEO (measured by common educa­
tional background and non-professional ties) improve innovation activities. Faleye et al. (2014) find that CEO connections alleviate
CEO risk aversion in corporate investment decisions, resulting in more R&D spending. However, Faleye et al. (2014) measure CEO
connections as the total number of individuals with whom the CEO shares a common employment, educational, or social history
(excluding connections with directors at his/her current firm). Conversely, using an experimental study involving directors and
MBARose et al. (2014) conclude that director–CEO friendship ties increase directors’ willingness to approve reductions to R&D in­
vestments that cause earnings to rise enough to meet the CEO’s minimum bonus.
Concerning prior studies on age difference, Goergen et al. (2015) and Zhou et al. (2019) examine whether Chair–CEO age
dissimilarity affects firm value and bank risk-taking, respectively. Goergen et al. (2015) study the effect of Chair–CEO age dissimilarity
considering the German two-tier board system. They find that Chair–CEO age dissimilarity increases firm value (as measured by
Tobin’s Q) and monitoring intensity (as measured by the frequency of board meetings). Using the same approach on a sample of 100
listed banks in Europe, Zhou et al. (2019) report that chair–CEO age dissimilarity is beneficial for controlling, and thereby curbing,
bank risk-taking behavior.
Based on the competing views presented in the above discussion, we draw the following hypotheses:
H1: Chair–CEO age similarity positively affects R&D investment.
H2: Chair–CEO age similarity negatively affects R&D investment.

3. Methodology

3.1. Study model and variables

We use the following model to test our hypothesis:

R&D intensityit = a0 + a1 Chair − − CEO Age Similarity + a2 Control Variablesit + ϵit

3.1.1. Dependent variables

Following prior studies (e.g., Bromiley et al., 2017; Bravo and Reguera-Alvarado, 2017; Jadiyappa and Chauhan, 2023), the R&D
intensity is measured as the ratio of R&D expenditure to total sales. R&D investment represents the foundational step in the innovation
process and signifies a company’s present readiness and ability to innovate (Baysinger and Hoskisson, 1989; Faleye et al., 2014). In
addition to the fact that R&D expenditures are strongly linked to sales (Himmelberg and Petersen, 1994; Yoo and Sung, 2015), using
this ratio helps in controlling for size effects and heteroskedasticity, enabling a more accurate comparison of R&D intensity amongst
various companies (Hoskisson and Hitt, 1988; Chen et al., 2013; Azzam and Alhababsah, 2022).

3.1.2. Independent variables

The main variable of interest in this study is Chair–CEO age similarity, which is measured as the absolute value of Chair–CEO age
difference multiplied by minus one (so that higher value represents higher age similarity between the Chair and the CEO regardless of
who is older). To examine the case when the Chair is younger than the CEO, we control for younger Chair. Chair Younger is measured
as a dummy variable equal to 1 if the Chair is younger than the CEO, and zero otherwise. Moreover, we examine the impact of Chair age
and CEO age on R&D investment separately, in order to see whether age itself matters.

3.1.3. Control variables

We include the following groups of variables that might affect R&D spending. First, we control for demographic similarities be­
tween Chair and CEO which might affect R&D spending, namely gender similarity and education similarity. Second, following prior

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A. Azzam and S. Alhababsah Finance Research Letters 58 (2023) 104522

studies (Chen et al., 2013; Goergen et al., 2015; Jiang et al., 2020; Hsu et al., 2020), we control for board, Chair and CEO attributes that
might affect R&D investments, namely Chair tenure, CEO tenure, founder Chair, founder CEO, busy Chair, board size, and the fre­
quency of board meetings. The final category includes a set of firm-specific variables reported in prior studies (Barker and Mueller,
2002; Chen et al., 2013; Guldiken and Darendeli, 2016; Yoo and Sung, 2015; Zhang et al., 2020; Azzam and Alhababsah, 2022). These
variables are firm size, leverage, firm age, pay growth, and return on equity. Definition of the variables is presented in Appendix 1.
Considering that the same company recurs in our final sample and the possibility that the residuals could be correlated among these
observations, we apply the robust standard errors, clustered by firm according to the methodology set forth by Petersen (2009). To
mitigate the estimation bias caused by outliers, we winsorize the continuous variables at the 1st and 99th percentile values.5

3.2. Sample

The sample of this study comprises of A-share companies traded on the main financial markets in China (Shanghai and Shenzhen
stock market) between 2009 and 2018. Our data are retrieved from China Stock Market and Accounting Research Database (CSMAR),
Economic Research database (CCER), and annual reports of companies. We have obtained 15,138 observations from non-financial
firms.6 Given the nature of the study, we excluded 1131 observations where role duality is present, i.e. where both Chair and CEO
are served by the same person. Our final sample is 14,007 observations over 10 years.

4. Findings and discussion

4.1. Descriptive statistics and collinearity test

The descriptive statistics (Table 1) show that the average R&D ratio to sales is 2.8 %. Compared with other countries, prior
literature reports that the average R&D ratio to sales is 2.3 % in the US (Bravo and Reguera-Alvarado, 2017), 2 % in India (Sasidharan
et al., 2015), and 4.6 % in Taiwan (Chen et al., 2013). The statistics also show that the average of the absolute age difference between
Chair and CEO is 6.5 years, with a maximum age gap of 27 years. The average Chair age is 53 years while the average CEO age is 49
years. We notice that the Chair is younger than the CEO in 36 % of our observations. Both the Pearson correlation (Table 2) and
variance inflation factor tests (untabulated) suggest that none of the correlations are significant enough to present risks of
multicollinearity.

4.2. Regression results and discussion

4.2.1. Chair–CEO age similarity and R&D investment

Table 3 presents the regression results for the association between Chair–CEO age similarity and R&D intensity. In Table 3, Column
1, we regress Chair age and CEO age on R&D investment in order to see their individual impact on R&D expenditure. Our findings do
not show a significant relationship between CEO age and R&D intensity. Although this result is inconsistent with Barker & Mueller
(2002), it confirms previous results reported by Conyon and Florou (2006) and Xu and Yan (2014). Similarly, we did not find a
significant association between Chair age and R&D, alleviating the concern on the adverse impact of aging on cognitive abilities. This
finding is in line with prior studies that find no significant relationship between directors’ age and innovation activities, especially
R&D investments (Azzam and Alhababsah, 2022). Furthermore, in a context outside R&D expenditure, both Waelchli and Zeller
(2013), and Goergen et al. (2015) did not report a significant relationship between the age of the Chair and the company’s
performance.
Column 2 shows the direction and the statistical significance level of the relationship between Chair–CEO age similarity and R&D
intensity. The sign of the regression outcome of Chair–CEO age similarity is negative and statistically significant, indicating that
Chair–CEO age similarity (i.e. less age gap between Chair and CEO) significantly reduces R&D intensity. In this column, we have added
Chair age and CEO age into the regression to show that the main effects of Chair–CEO age similarity hold over and above those
determined by the age of Chair and CEO.7 In Column 3, where we control for Chair Younger, we find that the coefficient of Chair
Younger is not significant, while the coefficient on Chair–CEO age similarity remains significant. This outcome is consistent with our
main discussion that what matters is the age similarity between Chair and CEO, regardless of whether the Chair is older than the CEO or
vice versa. We also use R&D expenditures to total assets as an alternative proxy commonly used in the literature for R&D intensity (e.g.,
Coles et al., 2006; Kor, 2006; Kim et al., 2021). The findings (untablated for brevity) still show a significant and a negative relationship
between Chair–CEO age similarity and R&D intensity.
Following prior studies, we carried out an additional test in which we lagged the independent variables by one year relative to the
dependent variable. The findings reported in Table 4 are largely consistent with our main inferences. Two key advantages mentioned
by prior studies for this approach: first, the effect of the independent variables on the dependent variable might not take place at the
same period. So, using one-year lag ensures a proper time ordering (Boone et al., 2019). Second, lagged independent variables
approach is used to check for endogeneity (e.g. Wintoki et al., 2012; Nielsen and Nielsen, 2013; Patro et al., 2018). The implicit

5
Our results are also similar if we do not winsorize these variables.
6
Financial firms are excluded because they work under different and more stringent regulations.
7
The results are also consistent when we exclude these two variables from the regression.

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A. Azzam and S. Alhababsah Finance Research Letters 58 (2023) 104522

Table 1
Descriptive statistics.
Variables Descriptive statistics for continuous variables Descriptive statistics for indicator variables
Mean SD Min Max Number of observations (%)

R&D intensity 0.028 0.11 0.00 0.38

Chair–CEO age similarity − 6.50 6.20 − 27.00 0.00
Chair–CEO gender similarity 13,026 (93 %)
Chair–CEO education similarity 560 (4 %)
Younger Chair 5042 (36 %)
Chair Age 53.00 6.10 34.00 72.00
CEO Age 49.00 6.07 36.00 64.00
Chair Tenure 3.81 2.82 0.80 12.00
CEO Tenure 3.50 3.99 0.86 13.50
Founder Chair 6443 (46 %)
Founder CEO 2241 (16 %)
Busy Chair 1751 (12.50 %)
CEO Expertise 14.00 9.22 5.00 39.00
Board Meetings 8.00 0.41 3.00 23.00
Board Size 9.00 1.88 6.00 17.00
Pay Growth 0.37 1.09 − 0.75 6.95
SIZE (log) 22.20 1.39 18.99 26.07
LEV 0.49 0.21 0.06 1.02
ROE 0.07 0.08 − 0.13 0.22
Firm Age (log) 2.61 0.45 1.08 3.22

Note: All variables are defined in Appendix 1. Continuous variables are winsorised at 1 % and 99 %.

assumption behind this approach is that the endogenous part of the explanatory variable disappears over time, while the exogenous
part persists instead.
Our results across different regressions are consistent with the weak monitoring argument. That is, while effective monitoring is
important to counter the CEO’s risk aversion concerning R&D investments, age similarity between Chair and CEO might reduce the
Chair’s willingness to exercise the required level of corporate strategy monitoring, and also hamper their ability to discipline
incompetent CEOs. Consistent with the agency theory proposition, such a lack of the Chair’s independence could leave a negative
impact on their ability to monitor and, therefore, on R&D spending. Given that the impact of social ties is more pronounced in China,
this result can be explained as Chair–CEO age similarity might create friendship, threatens Chair’s independence, thereby compro­
mising the quality of monitoring.
Although there are no similar studies to compare our findings with, our results are inconsistent with close studies in the area of
innovation such as Kang et al. (2018) and Faleye et al. (2014). Kang et al. (2018) find that directors-CEO social connections enhance
collaboration and promote board–CEO information sharing, thereby, fostering innovation activities. Similarly, Faleye et al. (2014)
conclude that CEO connections alleviate CEO risk aversion in corporate investment decisions, resulting in more R&D spending. It is
worth noting that these studies are conducted in the US where corporate governance system is strong and where the economic ac­
tivities are conducted on arm’s length basis (i.e. friendship might not have a significant adverse impact on business activities,
compared to China where social ties and favor are essential in socioeconomic activities) .8 Conversely, in line with our conclusion,
Rose et al. (2014)9 report that director–CEO friendship ties increase directors’ willingness to approve reductions to R&D investments
that cause earnings to rise enough to meet the CEO’s minimum bonus.
Concerning control variables, our regression shows that board meetings and pay growth improve R&D intensity. Conversely, a
negative association is reported between Chair tenure, founder Chair and firm size and R&D investments. These findings are aligned by
the arguments presented in prior studies. The frequency of board meetings is an essential board attribute could assist the board of
directors in keeping a vigilant eye on the CEO’s actions, particularly in relation to strategic choices such as R&D. Concerning pay
growth, Wu and Tu (2007) consider it as a potent method to stimulate CEOs’ risk-taking behavior including R&D investments. The
negative impact of Chair tenure on R&D intensity is consistent with the notion that long-serving chair may lose independence over time
(i.e. become captured by management) and therefore provide less effective monitoring (Baran and Forst, 2015). The potential
explanation for the negative association between founder Chair and R&D is that founder Chair might hesitate to invest in R&D due to
the fact that such a heavy investment often necessitates outside financing, like issuing additional shares or taking on debt. This,
therefore, might threaten the chair control over the firm (Jiang et al., 2020). Finally, While the influence of company size on R&D
investments might vary, our findings align with the contention that the market dominance of big corporations could potentially result
in managers having reduced motivation to fund innovative projects that could disrupt the status quo, as posited by Barker & Mueller

8
Another difference from our study is that the data used by Kang et al. (2018) and Faleye et al. (2014) can be considered relatively old as it covers
the periods from 1990 to 2004, and from 1997 to 2006, respectively.
9
Rose et al. (2014) is an experimental study involving directors and MBA students.

7
 A. Azzam and S. Alhababsah
Table 2
Correlation matrix.
Variables 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

1. R&D intensity 1
2. Chair–CEO age similarity − 0.021 1
3. Chair–CEO gender similarity − 0.028 − 0.049 1
4. Chair–CEO education similarity − 0.022 − 0.003 − 0.002 1
5. Younger Chair 0.004 0.385 − 0.023 0.0029 1
6. Chair Age − 0.002 − 0.441 − 0.022 − 0.052 − 0.448 1
7. CEO Age − 0.001 0.394 − 0.027 0.050 0.418 0.222 1
8. Chair Tenure − 0.025 0.078 − 0.011 0.110 − 0.070 0.299 0.130 1
9. CEO Tenure − 0.007 − 0.080 − 0.022 − 0.098 − 0.070 0.148 0.242 0.186 1
10. Founder Chair − 0.010 0.049 − 0.002 − 0.027 0.074 0.0210 0.065 0.152 0.049 1
8

11. Founder CEO 0.013 0.156 − 0.033 − 0.020 0.128 − 0.010 0.049 0.011 − 0.055 − 0.001 1
12. Busy Chair 0.029 0.009 − 0.021 0.010 − 0.006 0.010 0.048 − 0.056 0.040 0.015 0.024 1
13. Board Meetings − 0.012 0.019 − 0.033 0.066 - 0.011 − 0.062 − 0.047 − 0.027 − 0.051 − 0.063 0.041 − 0.11 1
14. Board Size 0.003 − 0.018 0.015 − 0.016 0.002 − 0.018 0.001 − 0.017 0.101 − 0.026 − 0.051 − 0.44 0.20 1
15. Pay Growth − 0.001 − 0.010 0.007 0.014 − 0.002 0.044 0.040 0.057 0.094 − 0.030 0.034 0.039 0.002 0.0054 1
16. SIZE − 0.084 0.020 − 0.036 0.052 − 0.053 0.165 0.145 − 0.092 − 0.087 − 0.051 0.044 − 0.014 0.11 0.013 0.083 1
17. LEV − 0.035 0.040 − 0.004 − 0.031 0.002 − 0.056 − 0.024 0.008 0.036 0.023 0.034 − 0.041 0.066 0.10 0.19 − 0.009 1
18. ROE − 0.007 − 0.029 0.080 0.024 − 0.042 0.043 0.005 0.020 − 0.056 − 0.083 − 0.059 − 0.0074 0.0073 − 0.05 − 0.15 0.17 − 0.05 1
19. Firm Age − 0.021 0.043 0.010 0.025 0.017 0.017 0.100 0.024 0.029 − 0.026 − 0.004 − 0.048 − 0.012 0.065 0.005 0.032 − 0.029 0.13 1
20. CEO Expertise − 0.005 − 0.079 − 0.020 − 0.087 − 0.062 0.180 0.286 0.160 0.318 0.030 0.041 0.047 0.090 − 0.013 0.062 − 0.120 − 0.080 − 0.012 0.180 1

All variables are defined in Appendix 1. *, **, *** indicate statistical significance at the 0.10, 0.05, and 0.01 levels (two-tailed), respectively.

Finance Research Letters 58 (2023) 104522

A. Azzam and S. Alhababsah Finance Research Letters 58 (2023) 104522

Table 3
Chair–CEO age similarity and R&D intensity.
Variables (1) (2) (3)

Chair–CEO age similarity − 0.0011*** − 0.0095***

(− 2.73) (− 2.77)
Younger Chair − 0.0015
(− 0.34)
Chair–CEO gender similarity − 0.0079 − 0.008
(− 1.61) (− 1.62)
Chair–CEO education similarity 0.0018 0.0018
(1.32) (1.32)
Chair Age 0.009 − 0.003 − 0.0004
(0.22) (− 0.93) (− 1.00)
CEO Age − 0.004 0.004 0.004
(− 0.13) (1.16) (1.11)
Chair Tenure − 0.001* − 0.001* − 0.0012*
(− 1.70) (− 1.72) (− 1.70)
CEO Tenure − 0.006 − 0.006 − 0.007
(− 1.42) (− 1.28) (− 1.27)
Founder Chair − 0.007*** − 0.007*** − 0.007***
(− 2.69) (− 2.60) (− 2.60)
Founder CEO − 0.0048 − 0.0027 − 0.003
(− 0.86) (− 0.49) (− 0.40)
CEO Expertise − 0.009 − 0.010 − 0.090
(− 1.01) (− 0.89) (− 0.89)
Busy Chair 0.0015 0.0017 0.0017
(0.23) (0.24) (0.24)
Board Meetings 0.0086** 0.0086** 0.009**
(2.42) (2.40) (2.40)
Board Size − 0.005 − 0.005 − 0.005
(− 0.74) (− 0.82) (− 0.89)
Pay Growth 0.0035*** 0.0034*** 0.0033***
(3.90) (3.68) (3.68)
SIZE (log) − 0.019*** − 0.0192*** − 0.0194***
(− 6.88) (− 6.90) (− 6.88)
LEV 0.017 0.017 0.017
(1.64) (1.65) (1.65)
ROE 0.003 0.0027 0.0026
(0.18) (0.15) (0.15)
Firm Age (log) 0.0115* 0.012* 0.012*
(1.81) (1.88) (1.88)
Constant 0.451*** 0.439*** 0.439***
(7.60) (7.13) (7.12)
Year effect yes yes yes
Industry effect yes yes yes
adj. R2 0.20 0.21 0.21
N 14,006 14,006 14,006

Note: All variables are defined in Appendix 1. *, **, *** indicate statistical significance at the 0.10, 0.05, and 0.01 levels (two-tailed), respectively.
All tabulated t-statistics are based on standard errors that are clustered at the firm level.

(2002) .10

4.2.2. Board–CEO age similarity and R&D investment

Although the Chair is the focal point of the CEO’s relations with other parties, particularly with the CEO, we acknowledge that all
board directors work as a team to monitor CEOs and make strategic decisions. Hence, we examine the relationship between board–CEO
age similarity and R&D investment. Board age is measured by the average age of all board members. The results (Table 5) are largely
consistent with our main findings when we considered the Chair. However, the findings report that the significance the relationship
between board–CEO age similarity and R&D intensity is weaker, compared with when we consider the Chair only. This finding
suggests that the effect of age similarity between Chair and CEO on R&D investment is stronger than that of age similarity between
board and CEO, which might be owing to the vital role played by the Chair in leading the board and communicating with the CEO. In
particular, this result supports the argument that the Chair in China wields significant legal authority, often serving the de facto top
managers of the company (Jinag & Kim, 2015). This finding also aligns with Krause et al. (2019), which suggests that the influence of
Chinese Chairs on company performance is notably more pronounced than that of their counterparts in the US and the UK.

10
The insignificant effect of other control variables on R&D intensity aligns with the findings of previous research (e.g., Barker & Mueller, 2002;
Chen, 2014; Azzam & Alhababsah, 2022).

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A. Azzam and S. Alhababsah Finance Research Letters 58 (2023) 104522

Table 4
Chair–CEO age similarity and R&D intensity using lagged variables (t-1).
Variablest-1 (1) (2) (3)

Chair–CEO age similarity − 0.002*** − 0.008***

(− 3.05) (− 3.07)
Younger Chair − 0.003
(− 0.75)
Chair–CEO gender similarity − 0.004 − 0.004
(− 1.31) (− 0.87)
Chair–CEO education similarity 0.002 0.0018
(1.65) (1.64)
Chair Age 0.004 − 0.001 − 0.001
(0.33) (− 0.70) (− 0.19)
CEO Age − 0.003 − 0.0016 0.003
(− 0.261) (− 0.61) (0.10)
Chair Tenure − 0.005* − 0.0011* − 0.009*
(− 1.66) (− 1.79) (− 1.79)
CEO Tenure − 0.008* − 0.007 − 0.007
(− 1.70) (− 1.49) (− 1.49)
Founder Chair − 0.004 − 0.006 − 0.001
(− 0.17) (− 0.25) (− 0.24)
Founder CEO − 0.004 − 0.0023 − 0.002
(− 1.10) (− 0.55) (− 0.51)
CEO Expertise − 0.010 − 0.090 − 0.090
(− 1.19) (− 1.03) (− 1.02)
Busy Chair 0.003 0.005 0.005
(0.95) (1.22) (1.23)
Board Meetings 0.002* 0.002* 0.002*
(1.69) (1.67) (1.67)
Board Size − 0.002 − 0.001 − 0.0002
(− 0.33) (− 0.30) (− 0.30)
Pay Growth 0.003*** 0.003*** 0.003***
(3.04) (2.83) (2.83)
SIZE (log) − 0.011*** − 0.011*** − 0.011***
(− 6.69) (− 6.69) (− 6.70)
LEV 0.008 0.009 0.010
(1.02) (1.08) (1.08)
ROE 0.004 0.004 0.004
(0.30) (0.23) (0.219)
Firm Age (log) 0.004 0.004 0.005
(0.80) (0.79) (0.79)
Constant 0.29*** 0.28*** 0.28***
(8.29) (8.07) (8.10)
Year effect yes yes yes
Industry effect yes yes yes
adj. R2 0.194 0.206 0.197
N 14,006 14,006 14,006

Note: All variables are defined in Appendix 1. *, **, *** indicate statistical significance at the 0.10, 0.05, and 0.01 levels (two-tailed),
respectively. All tabulated t-statistics are based on standard errors that are clustered at the firm level.

5. Conclusion

The aim of this study is examining the effect of age similarity between Chair and CEO on R&D investment using a sample of Chinese
public firms. We find that Chair–CEO age similarity decreases R&D intensity. The results suggest that the adverse impact of age
similarity (e.g. biased monitoring) outweighs the positive impact (e.g. better collaboration and candid information sharing). Our
findings hold when use an alternative proxy for R&D intensity, and when we also consider the entire board, instead of just the Chair.
By extending psychology perspectives to corporate governance and strategic management subjects, this research provides a sig­
nificant contribution to the literature and practice. This study enriches the academic discourse by highlighting a new factor affecting
R&D intensity. In the same regard, our research promotes further investigations into demographic similarities between key corporate
governance players. For example, future research can investigate whether age (or other demographic) similarities among different
corporate governance practitioners (e.g. members of audit committee, remuneration committee and external audit team) impact other
business outcomes outside of R&D area. Our findings have also implications for practice. In particular, companies aiming for ongoing
innovation may want to reconsider age gap between Chair and CEO.
This study conducted in China in which the corporate governance system is weak and in which social ties and favor are essential in
socioeconomic activities. However, the findings might be less relevant to countries where the corporate governance system is robust,
and where business is usually conducted on an arm’s-length basis. These markets might be targeted for future research. Finally,
although using one-year lag of the independent variables relative to the dependent variable minimizes the possibility of endogeneity,

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A. Azzam and S. Alhababsah Finance Research Letters 58 (2023) 104522

Table 5
Board–CEO age similarity and R&D intensity.
Variables (1) (2)

Board–CEO age similarity − 0.0022*

(− 1.72)
Board–CEO gender similarity − 0.009
(− 1.40)
Board–CEO education similarity 0.003
(1.49)
Board Age 0.031 − 0.039
(0.95) (− 1.10)
CEO Age − 0.003 0.004
(− 0.12) (1.18)
Board Tenure − 0.0012 − 0.0012
(− 1.62) (− 1.50)
CEO Tenure − 0.007 − 0.006
(− 1.33) (− 1.11)
Founder Chair − 0.006*** − 0.006***
(− 2.62) (− 2.61)
Founder CEO − 0.005 − 0.0029
(− 0.86) (− 0.47)
CEO Expertise − 0.012 − 0.015
(− 1.42) (− 1.23)
Busy Board 0.002 0.002
(0.22) (0.28)
Board Meetings 0.009** 0.0089**
(2.44) (2.38)
Board Size − 0.004 − 0.001
(− 0.72) (− 0.80)
Pay Growth 0.0027*** 0.0026***
(3.10) (3.23)
SIZE (log) − 0.018*** − 0.018***
(− 6.03) (− 6.78)
LEV 0.016 0.016
(1.59) (1.44)
ROE 0.003 0.003
(0.24) (0.131)
Firm Age (log) 0.014* 0.012*
(1.74) (1.85)
Constant 0.331*** 0.426***
(7.45) (7.21)
Year fixed-effect yes yes
Industry fixed-effect yes yes
adj. R2 0.22 0.23
N 14,006 14,006

Note: All variables are defined in Appendix 1. *, **, *** indicate statistical significance at the 0.10, 0.05,
and 0.01 levels (two-tailed), respectively. All tabulated t-statistics are based on standard errors that are
clustered at the firm level.

we cannot definitely rule out this problem. Instrumental variable estimation is another robust approach to check for endogeneity.
Nevertheless, this method necessitates the presence of valid exclusion restrictions, which are often unavailable (Larcker and Rusticus,
2010). To the best of our knowledge, the pertinent studies have failed to pinpoint a valid instrument for evaluating Chair–CEO age
similarity, or for age itself. The absence of such a valid instrument inhibits our capacity to perform reliable instrumental variable
regressions. As a result, it is important to interpret our results with caution, keeping this limitation in mind.

Funding

We confirm that there is no funding receive for this research.

Author statement

We confirm that this work is original and has not been published elsewhere, nor is it currently under consideration for publication
elsewhere.

Data availability

The data that support the findings of this study is available from the corresponding author upon request.

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A. Azzam and S. Alhababsah Finance Research Letters 58 (2023) 104522

Declaration of Competing Interest

We have no conflict of interest to disclose.

Data availability

Data will be made available on request.

Appendix 1: Variable definition

Variables Definition

R&D intensity Research and development expenditures scaled by the total sales for firm i in year t.
Chair–CEO age similarity The absolute value of Chair–CEO age difference for firm i in year t then multiplied by minus one so that higher values represent
higher age similarity between the Chair and CEO regardless of whoever is older.
Younger Chair An indicator variable equal to 1 if Chair age is smaller than CEO age for firm i in time period t, and 0 otherwise.
Chair–CEO gender An indicator variable equal to 1 if the gender of the Chair and the CEO for firm i in time period t is the same and 0 otherwise.
similarity
Chair–CEO education An indicator variable equal to 1 if the Chair and the CEO have the same level of education (i.e., degrees earned), and 0 otherwise.
similarity
Chair Tenure The number of years chair has been in his/her role for firm i in time period t.
Chair age Chronological age of chair for firm i in year t.
Founder Chair An indicator variable equal to 1 if the Chair is the founder of the company, and 0 otherwise.
CEO Tenure The number of years CEO has been in his/her role for firm i in time period t.
CEO age Chronological age of CEO for firm i in year t.
Founder CEO An indicator variable equal to 1 if the CEO is the founder of the company, and 0 otherwise.
CEO Expertise The length of CEO work experience.
Firm Age The natural logarithm of the number of years since the listed of the firm.
SIZE The natural logarithm of total assets for firm i in year t.
LEV The total debt for firm i in year t scaled by the total equity.
ROE Net operating income divided by total equity for firm i in time period t.
Busy Board Dummy variable that takes the value of one if at least 50 % of the shareholder representatives hold three or more directorships, and
zero otherwise.
Pay Growth The average salary growth rate of executive team for firm i in year t.
Board meetings The annual meeting number of the board for firm i in year t.
Board Size Number of board directors for firm i in year t..

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