Governance, Corruption & Innovation Corporate Governance, Corruption, and Innovation: An Empirical Analysis

Abstract

This study examines the relationship among corporate governance, corruption, and innovation in publicly listed firms in Pakistan, filling a significant need in developing market research. Unlike prior studies focused on developed economies or China, this paper uniquely contextualizes the governance–corruption–innovation nexus in Pakistan. Employing a mixed-methods approach, the study analyses panel data from 100 firms listed on the Pakistan Stock Exchange (2012–2020) and incorporates qualitative case studies of high-profile corruption scandals. Patent filings are used as an indicator of innovation, while excessive CEO salary serves as a proxy for corruption. Fixed effects and instrumental variable regressions indicate that a one-unit rise in excess remuneration decreases patent filings by 0.05 units, but a 10% increase in board independence enhances innovation by 0.012 patents. Financial limitations partially mediate this association, exhibiting a notable indirect effect (0.015, p<0.05). The findings highlight the necessity for enhanced governance to alleviate the detrimental impact of corruption on innovation, offering novel insights for policymakers and business executives in emerging markets.