Memoire

HOLY SPIRIT UNIVERSITY OF KASLIK
FACULTY OF BUSINESS ADMINISTRATION AND COMMERCIAL SCIENCES
THE INFLUENCE OF CORPORATE GOVERNANCE ON
INNOVATIVE SUCCESS: A LIFE CYCLE ANALYSIS
MBA in INTERNATIONAL MANAGEMENT AND AFFAIRS
Prepared by
RAYMOND KHATTAR
Under the Supervision of
Dr. MARIO SASSINE
Kaslik, 2016

Declaration
I hereby declare that this thesis is entirely the result of my own work. It has not been
previously submitted for any other degree at any other university. Any other thoughts
from others and literal quotations are clearly acknowledged by means of complete
references. I further state that I have obtained the necessary authorization and consent to
carry out this research.

Acknowledgments
First of all , I want to thank my small family for their support from the beginning of my
educational career at SCHOOL till my MASTER thesis and degree in several part
(educational ,morally and economical).
Secondly, I want to thank DR.MARIO SASSINE for being near me all those two
semester and helped me in each part of my thesis and leaded me to finish and present this
layout.
Finally, I want to thank USEK my biggest family for the MBA courses and business
knowledge , specially USEK library because it was the place where I search, read books
and spending my time working on my thesis.

Abstract
Innovation has always been a source of competitive advantage and firm performance.
With today’s technological advances, innovation has even gained more importance for
firms. Innovative firms know many obstacles to their initiation and through their
development. These include financing problems, governance issues and life cycle stage.
This research examines the relationship between corporate governance mechanisms and
life cycle stages on the innovative success of a sample of Lebanese firms. The results
show that the success of innovative firms is positively correlated with their CEO’s
participation in capital and with their employees’ participation in capital. They also show
that the impact of corporate governance mechanisms on innovative firms’ success
significantly differs according to their life cycle.
Key words: innovation, corporate governance, life cycle, capital.

Résumé
L'innovation a toujours été une source d'avantage concurrentiel et de performance pour
les entreprises. Avec les progrès technologiques d'aujourd'hui, l'innovation a même gagné
plus d'importance pour les entreprises. Les entreprises innovatrices connaissent de
nombreux obstacles à leur initiation et à leur développement. Ceux-ci incluent des
problèmes de financement, des questions de gouvernance et de stade de cycle de vie.
Cette recherche examine la relation entre les mécanismes de gouvernance d'entreprise et
les étapes du cycle de vie sur le succès d'innovation d'un échantillon d'entreprises
libanaises. Les résultats montrent que le succès des entreprises innovantes est
positivement corrélé avec la participation de chefs d'entreprise dans le capital et avec la
participation de leurs employés dans le capital. Ils montrent également que l'impact des
mécanismes de gouvernance d'entreprise sur le succès des entreprises innovantes diffère
de manière significative en fonction de leur cycle de vie.
Mots clés: innovation, gouvernance d'entreprise, cycle de vie, capital.

Table of contents
Introduction 1
Chapter 1: Firm life cycle and innovation 3
Section 1: Concept of firm life cycle 3
1.1 Material life cycles 3
1.1.1 Product life cycle 3
1.1.2 Technology life cycle 5
1.2 The human and social life cycles 6
1.2.1 Human resources life cycle 6
1.2.2 Organizational patterns’ life cycle 7
1.3 Firm’s autonomous life cycle 8
Section 2: Innovation 11
2.1 Two main innovation strategies 11
2.2 Innovation process management 13
Chapter 2: Corporate governance and innovative enterprise success 15
Section 1: Governance mechanisms in innovative enterprises 15
1.1 Factors influencing governance in innovative enterprises 15
1.2 Governance models of innovative enterprises 18
Section 2: Positive effects of governance model on innovative firms 20
2.1 Impact of the ownership structure 20
2.1.1 The participation of the CEO in firm’s capital 21
2.1.2 The presence of venture capitalists in the ownership structure 21
2.1.3 Employees’ capital ownership 22
2.1.4 Leader’s family participation in the firm 23
2.2 The Board characteristics 24
2.2.1 Board composition 25

2.2.2 Board size 26
Chapter 3: Researchmethodology 27
Section 1: Data collection 27
1.1 Data collection tool 27
1.2 Population sample 28
Section 2: Variables 30
2.1 Independent variables 30
2.2 Dependent variable 31
Chapter 4: Results and analysis 33
Section 1: Descriptive statistics 33
1.1 Corporate governance mechanisms 33
1.2 Innovation success 36
1.3 Firm life cycle 39
Section 2: Analysis 40
2.1 Inferential statistics 40
2.1.1 Inferential statistics according to Sector 40
2.1.2 Inferential statistics according to Firm size 47
2.1.3 Inferential statistics according to Firm age 53
2.2 Test of hypotheses 60
Conclusion 62
Bibliography 65

List of figures
Figure 3.1 Distribution of sample according to sector 28
Figure 3.2 Distribution of sample according to firm size 28
Figure 3.3 Distribution of sample according to firm age 29
Figure 4.1 Venture capitalist contribution to firm’s capital 34
Figure 4.2 Products innovation type 36
Figure 4.3 Services innovation type 37
Figurer 4.4 Processes innovation type 38
Figure 4.5 Firm’s life cycle phase 39
Figure 4.6 Share of firm’s CEO in capital according to Sector 40
Figure 4.7 Venture capitalist contribution to firm’s capital according to Sector 41
Figure 4.8 Share of firm’s employees in capital according to Sector 41
Figure 4.9 Share of the CEO’s family members in firm’s capital according to Sector 42
Figure 4.10 Number of independent directors in the Board according to Sector 42
Figure 4.11 Total number of members in the Board according to Sector 43
Figure 4.12 Products innovation degree according to Sector 43
Figure 4.13 Products innovation type according to Sector 44
Figure 4.14 Services innovation degree according to Sector 44
Figure 4.15 Services innovation type according to Sector 45
Figure 4.16 Processes innovation degree according to Sector 45
Figure 4.17 Processes innovation type according to Sector 46
Figure 4.18 Firm’s life cycle phase according to Sector 46
Figure 4.19 Share of firm’s CEO in capital according to Firm size 47
Figure 4.20 Venture capitalist contribution to firm’s capital according to Firm size 47
Figure 4.21 Share of firm’s employees in capital according to Firm size 48
Figure 4.22 Share of the CEO’s family members in firm’s capital according to Firm
size 48
Figure 4.23 Number of independent directors in the Board according to Firm size 49

Figure 4.24 Total number of members in the Board according to Firm size 49
Figure 4.25 Products innovation degree according to Firm size 50
Figure 4.26 Products innovation type according to Firm size 50
Figure 4.27 Services innovation degree according to Firm size 51
Figure 4.28 Services innovation type according to Firm size 51
Figure 4.29 Processes innovation degree according to Firm size 52
Figure 4.30 Processes innovation type according to Firm size 52
Figure 4.31 Firm’s life cycle phase according to Firm size 53
Figure 4.32 Share of firm’s CEO in capital according to Firm age 53
Figure 4.33 Venture capitalist contribution to firm’s capital according to Firm age 54
Figure 4.34 Share of firm’s employees in capital according to Firm age 54
age 55
Figure 4.36 Number of independent directors in the Board according to Firm age 55
Figure 4.37 Total number of members in the Board according to Firm age 56
Figure 4.38 Products innovation degree according to Firm age 56
Figure 4.39 Products innovation type according to Firm age 57
Figure 4.40 Services innovation degree according to Firm age 57
Figure 4.41 Services innovation type according to Firm age 58
Figure 4.42 Processes innovation degree according to Firm age 58
Figure 4.43 Processes innovation type according to Firm age 59
Figure 4.44 Firm’s life cycle phase according to Firm age 59

List of tables
Table 4.1 Share of your firm’s CEO in capital (%) 33
Table 4.2 Share of firm’s employees in capital (%) 34
Table 4.3 Share of the CEO’s family members in firm’s capital (%) 35
Table 4.4 Number of independent directors in the Board 35
Table 4.5 Total number of members in the Board 35
Table 4.6 Products innovation degree 36
Table 4.7 Services innovation degree 37
Table 4.8 Processes innovation degree 38
Table 4.9 Correlation test for H1 60
Table 4.10 Correlation test for H2 60
Table 4.11 Correlation between corporate governance and firm innovation 61
Table 4.12 Correlation between corporate governance mechanisms and innovative
firm’s success according to life cycle 61

1
Introduction
In an unstable economic environment and where technical developments are fast,
innovation becomes a key factor for competitiveness, growth and the creation of value for
enterprises. The challenge of innovation is a constant concern today in companies. This
fact is evidenced by the importance of budgets for research, for the development of new
products and for the constant improvement of efficiency at the level of all links in the
value chain. Faced with the rising Asian competition and the constraints of sustainable
development, large companies rely on innovation to stay competitive.
In almost all industrialized countries, governments are investing heavily to create the
conditions for innovation of their companies. All these initiatives demonstrate that
innovation is once again the heart of firms’ growth and competitiveness.
Thus innovation shifted from the status of a brilliant idea that provided a significant
income for life to become a continuous process allowing enterprises to survive and
achieve a competitive advantage. At the same time the concept of innovation has
expanded and is no longer confined to the field of technology. The majority of new
businesses are service companies where innovation mainly concerns the processes and
organization. In order to ensure the survival and development of his enterprise, the
modern manager should know how to mobilize and raise the creative potential of his
employees through a continuous and collective innovation process across the enterprise.
Two types of innovation are generally distinguished: radical innovation and incremental
innovation.
While innovation is proven to be a major source of survival, competitively and success,
innovative firms don’t all achieve success and their development generally witnesses
many obstacles such as funding problems and management conflicts between founders
and investors. These obstacles vary according to the development stage of such firms;
thus we speak about the life cycle of innovative firms. In this framework, a number of

2
studies have underlined some of the problems facing innovative firms and highlighted the
corporate governance mechanisms that may solve these problems. These mechanisms
mainly concern the structures of capital and board of directors in such firms.
Accordingly, this study tries to answer the following research questions: What corporate
governance mechanisms do Lebanese innovative firms adopt? How do these mechanisms
affect their innovative success? And how do they relate to these firms’ life cycle?
As mentioned in the above questions, this study focuses on the Lebanese entrepreneurial
field. Taking into consideration that firms involved with radical innovation projects are
rare in this country, the study will target also firms involved with incremental innovation
projects as well.
The importance of this study is that it sheds the light on the environment of innovative
firms in Lebanon, a topic neglected by previous literature as far as we know. In fact, with
the fast evolution of technology, namely mobile and wireless technology, Lebanon has
witnessed the emergence of new innovative firms specialized in Smartphone applications
and other technological fields. Besides these new firms, many Lebanese firms prove to
continuously look for incremental innovation for enhancing their market position and
competitive advantage. This is done through innovation in terms of marketing and
commercial offers.
This study comprises two main parts. The first one is a theoretical approach to the topic.
It consists of two chapters offering a literature review concerning the concepts of
organization life cycle, innovation, corporate governance and their interrelations. The
second part is an empirical one. It also consists of two chapters. The first one gives an
overview of the research methodology adopted as well as the population sample targeted.
The second chapter displays the statistical results of the survey made among Lebanese
innovative firms.

3
Chapter 1
Firm life cycle and innovation
Section 1: Concept of firm life cycle
At first glance, one might think that the firm has a unique life cycle, which is not entirely
wrong. Indeed, the company is composed of a lifecycle with sets of material life cycles,
human and social life cycles.... However, this set of life cycles would not prevent the firm
from having a specific life cycle.
For this, at first, we will discuss some life cycles that make up the firm, and secondly, we
will demonstrate that the firm has an autonomous life cycle despite its composition.
1.1 Material life cycles
One of the most important and most known cycles is the material life cycle, which itself
consists of a set of life cycles. We will analyze the main material life cycles that are the
product life cycle and the technology life cycle.
1.1.1 Product life cycle
The concept of product life cycle is very commonly used among marketing professionals,
since each product follows a life cycle of its own. According to the famous biological
analogy introduced by the American R. Vernon, products behave like living beings,
which would explain the similarities between the life cycle of man and that of a product
(Van Vliet V., 2012).

4
The product cycle can be summarized in four phases: introduction, growth, maturity, and
decline.
• The introduction phase: The products in this phase are emerging products, they
must enter a market. There are no consumers yet. The issue is to trigger and
generate sales.
• The growth phase: The products are in development. During this phase,
competition increases which increases the company's investment needs to acquire
or preserve market share. The increase in production volumes causes a reduction
of the price.
• The maturity phase: The products reach maturity. In this phase, there are no new
competitors, but conversely, there is a growing competition between the existing
players, which is due to a saturation of demand. The product is very cost effective
and requires little new investment.
• The decline phase: The products are aging. This phase corresponds to a drop in
demand. It is rare that a company chooses to launch a product already in decline.
However, it is quite common that a firm while selling products in maturity, they
reach the decline phase. In this case, the company must choose between
abandoning the product and re-launching it.
For some analysts, there would be actually five phases (not four) because before
launching a product, the company conducts trials, makes prototypes... corresponding to
the development phase. This last remark is being confirmed by another cycle of life of the
product. Indeed, there are two ways of presenting the product life cycle: first, from a
commercial point of view, where we connect with the life cycle of marketing methods,
the life cycle that we have presented, but it is also possible to represent the life cycle of a
product, from a general point of view (industrial and economic), which describes all the
stages through which passes the product, from its birth to its destruction (Van Vliet V.,
2012).

5
1.1.2 Technology life cycle
Just like the products, technologies have their own life cycle. Technologies are created,
they evolve more or less quickly, are very popular (mass distribution) and sometimes
regress before becoming obsolete. Taking into account these observations, we can define
the life cycle of technologies which is divided into four phases (Foster, 1986).
• The embryonic technology phase: The firm slowly improves its performance
despite high investments in research and development.
• The emerging technology phase: The technologies in this phase (growth phase)
are called to replace key technologies. Indeed, the firm, through its research,
improves its knowledge, allowing it to master its technology and make
productivity gains.
• The key technology phase: The firm masters even better its technologies and the
competitive impact is strong. However the firm reaches the limit of its
technological performance.
• The core technology phase: The firm, like its competitors, has control of its
performance, which explains that the competitive impact is not very significant.
This requires that the firm knows how to decide to abandon its core technology at
the right time and introduce new technologies.
R. Foster offers this diagnosis on technology investment to move from one technology to
another. Thus, splits and breaks between two technologies should be avoided even if
technological efforts weigh on short-term results.

6
1.2 The human and social life cycles
In this set of life cycles, we analyze more specifically two of these life cycles that are the
life cycle of human resources and life cycle of organizational patterns.
1.2.1 Human resources life cycle
Regarding personnel, there is also a life cycle that is based on the career of human
resources. For this, we refer to that in Odiorne (1984) based his approach on the fact that
the career of any individual can be summarized by the concept of life cycle. This life
cycle is as follows:
1) Start: The individual is hired by the company therefore the case is about an
inexperienced young individual (this involves relatively high costs, particularly in terms
of training). The company will look for young employees, able to adapt to all types of
situations.
2) Growth: It's been some time that the individual is in the firm, generally 5 to 15 years.
He develops within the firm by empowerment i.e. becoming a middle manager, project
manager or department expert. During this phase the individual is very active, will
undergo training, will not count his working hours, and will be very efficient at his job.
3) Maturity: The individual is now well installed in the company. His evolution ends. He
is at that moment a top administrator, head of department without promotion prospects
(aged 40 to 60 years, their growth potential is often exhausted and the individual is well
within his organization and no longer wishes to evolve). The firm during this phase
should already think about the future, looking for future staff.
4) Decline: The individual is now old, his contribution is decreasing because of declining
health, an obsolete technology, lack of motivation or energy, it is the end of the
individual within the company, he has spent numerous years there, and arrived to the end
of his career; he will now be retired and leave the company.

7
Staff must be innovative and flexible in all directions, ready to take responsibility and to
take risks. The staff in the different phases of its life cycle brings added value to the
company.
1.2.2 Organizational patterns’ life cycle
To present this lifecycle, we will refer to Greiner L. (1972) who modeled this life cycle in
a growth process of five stages whose transitions are characterized each time by a
specific crisis. According to Greiner, there is a correlation between firm age and size: the
older the firm is, the more it grows in size. There are five stages of growth:
• Growth through creativity: The firms are innovative in a growing market. This
growth will lead to the leadership crisis (it must be determined who has the
management power).
• Growth by management: An individual took power and runs the business,
allowing the company to grow again before finding himself facing a new crisis:
the crisis of autonomy (problem of financing).
• Growth through delegation: capital providers do not manage themselves the firm;
they appoint an agent to represent them. This delegation will generate the control
crisis (the structure must be changed and the firm is too large for a single leader).
• Growth through coordination: In this phase, we notice the growth of a group (each
subsidiary has certain autonomy). But the structure need is very important. By
moving in this way, the needs of the organization will correspond largely to the
needs of the administration, which is the origin of bureaucracy crisis.

8
• Growth through collaboration: The organization turns towards outsourcing
activities, which reduces the size of the structure. This last growth can be the
cause of future collapse.
1.3 Firm’s autonomous life cycle
The life cycle concept we have previously applied to different components of the firm is
also an observable phenomenon at the firm’s level as a whole. This allows distinguishing
the different stages of the life of an organization and to highlight the common phases in
most firms. The life cycle of an organization can be defined in five phases as follows
(Nordstrom C. et al., 2012):
• The entrepreneurial phase:
This phase corresponds to the phase that has been called start-up phase, as regards to
products. For organizations the term entrepreneurial phase is used. This concept suggests
the creation of new activities, the lightness of structures and innovation, but it also
involves risk taking and the ability to tackle rapid change. In this phase, the company
must be flexible and have a significant adaptability to seize opportunities. At the
organization and structure level of the company, this translates into an almost nonexistent
formalization of management methods, the absence of binding rules or procedures. This
first phase involves the presence of an individual or group of individuals who can be
identified as the entrepreneur(s). It is around them that the organization will be built. In
the initial period, at least, they will be the center of the circle of competence and their
departure is a high probability of fatality to the company.
• The growth phase:
This phase is characterized mainly by an overall increase in activity level. Just like the
level of activity, the size of the organization is growing which causes a drop in business

9
risk (it gets some stability). Gradually, the individual functions of each member are
distinguished; the typical structure of the entrepreneurial phase is replaced by a simple
functional structure (Phelps et al., 2007).
Consequent to the multiplying volume of tasks and the fact that latter are becoming
increasingly complex, the leader then encourages delegations. At the staff level, this
phase involves the use of individuals able to understand and reproduce the principles of
cultural and industrial leaders. Individuals need to be flexible but also able to cooperate
within a group.
• The profit phase:
The organization reaches maturity, its aim is not to grow but to maintain its level of
activity, for example by putting pressure on costs. Furthermore, due to its growing
development, the firm is forced to change its structure and choose a divisional or matrix
type structure; a structure better suited to its needs. Regarding the firm’s personnel,
policy should be centered on three main axes which are logistics, motivation and social
initiatives (Phelps et al., 2007). In the profit phase, motivation is based on planned
actions that may involve theoretical analysis. Regarding the social role of the company, it
will be appreciated either by gradually creating a more dense relationship tissue, or
because of a conflict. Although the profit phase appears as the one of stability and
consistency, it has nevertheless various risks.
• The restructuring phase:
This phase is particular because its location in the lifecycle is not absolute; it can appear
directly after growth or, conversely following a period of decline. The description of this
phase is changeable according to the firm; it can consist of a call into question of the
organization by its members or a rescue operation to prevent its disappearance. This
explains why we speak, depending on the circumstances, about restructuring,
redeployment, flipping, rejuvenation or rescue. The company, during this phase, is faced
with more powerful competitors, or that its technologies are becoming obsolete... all

10
these situations explain the company's changing needs. This phase arises from the
awareness or the anticipation of a decline phase and the decision to take action to reverse
the trend.
• The decline phase:
This phase is due, in general, to stagnation in corporate structure as well as a reduction in
the volume of activity. The causes of these phenomena are diverse: for example, in
mono-production companies, the shift of its unique product to the last phase of its life
cycle, i.e. declining phase, impels the whole enterprise because the whole business
depends on this product. The decline is characterized, among others, by significant falls
in sales, by sharp increases in labor, transport or raw materials costs, or by unnecessary
duplication of operations already carried out elsewhere...
According to Mintzberg (1984), the diversity of organizational structures can be justified
by their position in their lifecycle.
The formation phase usually involves always a form of entrepreneurial firm, simple
structure, relatively informal, dependent on one man (the boss), without techno-structure
or logistics functions, a simple technical system. The development phase is about
mechanistic, missionary or innovative structures. It tends to stiffen increasingly to lead
them to adopt, at maturity, mechanistic structures such as professional bureaucracy.
Finally, the characteristic shape of the decline phase is the politicized structure where
power has no technical legitimacy and raises conflicts between individuals and groups to
the extent where self-interest prevails rather than the collective interest. These centrifugal
forces of the organization should lead to its breakup.

11
Section 2: Innovation
Creating value for key stakeholders requires companies to obtain and maintain a
competitive advantage. Innovation is a major way to achieve this as it can place the
company in virtual monopoly for a longer or shorter duration (Liouville, 2006). To
maintain the competitive advantage securing long-term competitiveness, it is essential for
companies to put in place a real management of technology, based on the two main
innovation strategies namely radical innovation and incremental innovation.
2.1 Two main innovation strategies
The first innovation strategy is one that involves achieving an advantage of know-how or
skills that competitors do not yet have. This is what some call the pioneer’s advantage in
a new market. Danneels (2002) proposed a model based on two categories of skills
required for product innovation: skills related to technology and those related to clients.
The breakthrough innovation is defined there as a type of innovation that involves new
skills for the company both technologically and in terms of customers.
The second innovation strategy aims to create barriers to entry, protecting as long as
possible the innovative technology to maximize the direct profits until the monopoly is
broken by the laws of the market. This form of so-called incremental innovation strategy
is based on increasing the speed and pace in the introduction of new products. The most
famous example is Intel which imposes the pace of product renewal to the entire chip
industry. This acceleration of marketed products is consistent with the focus on
incremental innovations to reduce the period of return on investment and risk (Thomke,
2001).
Most companies’ expenditures on research and development are evolving in recent years
(Ferrari, 2002). However, R&D is a risky investment, the production of knowledge with
very different characteristics to that of a good or service: knowledge is not produced to be

12
sold; it is always unique and different from the previous; it is impossible to determine in
advance its usefulness; the final cost is never fully known; its value is unpredictable.
Thus the question here is how to evaluate the gain generated by a R&D activity. The
industrial investor who embarks on the production of knowledge does not know what
he'll get, knows neither the time nor the cost of production and cannot estimate the
revenue. It consists of the general difficulty of assessing intangible investments. If the
company has chosen to pursue a radical innovation strategy, it does not necessarily file a
patent as creating high barriers is not the main goal. For example, Cisco develops fast
access policy to highly innovative technology using a unique expertise in the integration
of young technological enterprises (Ferrari, 2002).
By cons, if the company chooses an incremental innovation strategy, it should focus on
renewing its product range and focus on rapid joint innovative projects. Procter &
Gamble, for example, has developed an expertise in launching new products (Coyne,
2001). However in the context of SMEs, the problem of financing innovation arises. To
address the lack of funding source, some companies favor the use of equity capital as the
only solution because few investors are willing to take that risk. In some sectors such as
biotechnology, from the time the patent was filed, ten years of research and development
are needed to complete all clinical studies and three years of administrative procedures
allow obtaining the marketing authorization. The company therefore has only seven years
to assure a good return on investment.
The will to innovate and the choice of the strategy for achieving it are necessary but not
sufficient conditions. The innovation process must then be managed within the company,
both by setting up organizational structures and appropriate governance and mobilizing
the skills of the people involved.

13
2.2 Innovation process management
The management of the innovation process is based on two dimensions, namely the most
appropriate structures for innovation and management of key skills in the organization.
The choice of an organizational structure that promotes innovation is related to many
factors such as industry, company size or management style (Verona et al., 2003). The
pioneering work of organizations adapted to innovation suggested organic and adhocracy
forms to characterize flexible structures conducive to innovation.
However, several authors challenge these structural forms and suggest by cons new forms
such as semi-structured structures, dynamic structures and hybrid (Verona et al., 2003) to
reconcile imperatives of radical and incremental innovation. Meanwhile, these new
structures assume flexibility and accountability that are totally unsuited to the reality of
SMEs. Concerning governance in SMEs, it is little discussed in the literature on
technology companies. Governance in SMEs relates to the overall relationship between
the founders and between the venture capitalist and the entrepreneur. Today, managing an
SME is not an easy task. Anyone who accepts this challenge does it in order to contribute
to the development of a dynamic enterprise, not for prestige or remuneration, which is
rather modest. A board member is proud to contribute to the growth of an SME in the
extent of his capabilities, either by his experience of a specific industry, his relationship
with suppliers or customers, his technical knowledge or his general business knowledge.
The constitution of the board of directors (BOD) must be done keeping in mind all the
guidelines set by regulators. Initially, the board members must be able to exercise
independent judgment and be perceived as such. To this end, it is therefore strongly
suggested to recruit a majority of board members who are unrelated to the management
officers. In addition, the Board members must disclose any potential conflict of interests.
Also, the remuneration of Board members should reflect in a realistic way all their
responsibilities and the risk to which they are subject. Yet we insist particularly on the
separation that should exist between the Chairman of the Board and Chief Executive
Officer (CEO) to maintain the independence that was mentioned earlier. Finally, it is

14
recommended that the Board does not interfere in the daily management, without being
passive and just react to management proposals. Indeed, an effective BOD must be able
to question and even actively directing the paths and destiny of the company.
In this sense, the external members of the Board may be, in a successful enterprise, very
active and become excellent collaborators for the management, providing real added
value to the President and CEO of a dynamic SME.
Thus, it appears that the stakes of an efficient innovation management in the enterprise
not only fall within the choice of an organizational structure and appropriate governance,
but also the management of men.

15
Chapter 2
Corporate governance and innovative enterprise success
In this chapter, we expose the governance mechanisms in innovative enterprises set to
avoid potential conflicts of interest between the company's various partners. To do this,
we first present the factors influencing this governance. Then, we show the effects of
these devices on the success of innovative enterprises.
Section 1: Governance mechanisms in innovative enterprises
1.1 Factors influencing governance in innovative enterprises
According Depret et al. (2004), in a context marked by strong technological, industrial,
institutional uncertainties, governance of an innovative enterprise should be part of a
dynamic framework within which governance mechanisms are progressively co-produced
by all its partners (stakeholders) at every stage of its development and growth process
(from the initial boot to the commercial outcome of undertaken innovation projects). On
this basis, the governance structure of innovative enterprises is thus progressive and will
depend on several factors including:
- Their initial business models: This is probably one of the most important factors
in the sense that these companies are different from each other, although they all
perform R&D activities. In addition to different industries, there are indeed
geographical differences between European innovative enterprises and US
counterparts who rank first in terms of number. This can be explained by the fact

16
that they benefit from encouraging institutional and financial arrangements that
promote their creation, expansion and make them more dynamic (Mowery et al.,
2001). Therefore, they have significant resources, filing important patents,
generally have a quality scientific board and develop products whose success is
often guaranteed.
On the contrary, European companies are more fragile and in constant need of
refinancing (Depret et al., 2004). However, whatever their nationality, these
companies are progressing based on innovative activities they develop and which
also determine their financing needs. Therefore, they are undoubtedly sensitive to
funding at every stage of the development process, and therefore changes in their
ownership or financial structure (intervention of venture capital, alliances, etc.).
In addition, they have founders whose careers are diverse (top scientists,
engineers, young graduates, unemployed, etc), as well as organizational and
differentiated management structures (Depret et al, 2004).
Once established, young innovative enterprises adapt their strategies according to
the profitability of their activities, their development plan and the actual or
potential market share of their innovations. All this creates distinct business
models from one company to another and therefore multiple governance
structures.
- Shareholders and partners with whom they interact: Their action affects the
company's activities. Indeed, the latter in its research for funding may use
multiple sources, including venture capital (Mangematin, 2003). The latter,
according to the ownership and control rights that are at its disposal, can stimulate
the adoption of specific governance mechanisms or impose to the company a
director within the Board of Directors or setup the Management team members
(Dubocage et al., 2008). Similarly when the company engages with partners, like
other businesses of the same type, it can reproduce the governance thereof to

17
ensure organizational compatibility between partners or leave them to participate
in decisions within the Board of Directors (Depret et al., 2004).
- The strategies they adopt: these are closely related to technological innovations
whose development by these companies follows a process divided into several
stages. Each step corresponds to the specific needs (funding or resources)
functions of the company's goals (developing the product during the R&D phase,
testing a product for which it has filed a patent, applying for marketing permission
of product, etc.).
To achieve these objectives, the innovative company, namely the young one,
adopts strategies designed to choose either growth, with the risk of loss of
autonomy and sustainability (because of the high costs of R&D), or either opt for
independence and achieve continuity with the risk of competitive stagnation
(Depret et al., 2004). Generally, the transition from one stage to another depends
on the relative success of the previous step; that is to say the achievement of
intermediate objectives (Kaplan et al., 2003). This trend is also adopted by the
financing, and ownership, and can modify the original business model, corporate
strategy, and therefore its governance structure.
- And also the institutional environment that prevails: it consists of the socio-
economic, regulatory, political, financial environment in which the company
operates. It undoubtedly influences the existence and growth potential of the latter
to the extent that it is this environment that provides the necessary resources. In
addition, it encourages its activities and its sustainability through ensuring
protection of intellectual property rights and defining its scope through ethics.
Therefore, the definition of the business model, strategy, ownership, and
governance of the innovative enterprise depends on this environment.
These factors are far from being the only ones influencing innovative enterprises’
governance structure; particularly as they evolve they tend to adopt effective governance
methods tried in other companies or similar sectors.

18
1.2 Governance models of innovative enterprises
In their study, Depret et al. (2004) highlighted three governance models used by
innovative enterprises, namely biotechnology companies according to their stage of
development:
- Launching governance,
- Growth governance,
- Routine governance.
When they are in launching phase, these companies have a governance structure
characterized by the weight of founders and scientists who are more familiar with the
R&D project and who capture the majority of ownership titles as well as the decision
power. Conversely, external shareholders are cautious because they have little visibility
on the profitability of the project which is spread over a long horizon (Dubocage et al.,
2008). The organization of the company at this stage is much more flexible, of small size,
with flexible rules and a low hierarchical structure, thus less rigid. At this stage, the
challenges are generally technological ones (next stage of the project, patents to be filed
for). Finally, besides the high environmental constraints, the only outsiders able to limit
the powers, compel decisions and set the latitude of the founders are scientists (Depret et
al., 2004).
Growing up, these companies need substantial resources and therefore must rely on
external funding and partners. As seen in the previous section, this has the effect of also
changing their governance structure in which the outside shareholders are becoming
increasingly important, sometimes at the expense of initially present scientists
(Wasserman, 2003). Although decreased, the role of the latter is crucial since it is they
who decide on the feasibility or viability of the project supported by the company.
However, strategic power is concentrated in the hands of external shareholders who, in
order to maximize value, put pressure on the founder (manager) and his team. Generally,
their further financial participation is subject to the achievement of performing results
(Kaplan et al. 2003).

19
However, companies may be tempted to announce prematurely not effective results or
disguise their financial accounts in order to attract other investors. This is done in order to
increase their credibility with potential investors or existing shareholders, and obtain
financing. To limit this risk, shareholders (such as venture capitalists) get involved in the
company's management, and also reinforce their decision power exercised through the
Board or the Supervisory Board. While seeking outside shareholders for funding, these
companies can build partnerships with other, often larger firms. These can be associated
with decision making, hence their influence on the governance structure. Progressively,
innovative enterprises tend to reproduce the governance of their partners aiming for a
better collaboration. This most often occurs in the case of an merger or acquisition.
At maturity, the organization of innovative companies either becomes mechanistic, or a
simple structure with division of labor. According to Depret et al., (2004)., at this stage,
these companies enter into a logic of routine governance that will be characterized firstly
by the rule of a strategic core having exclusive tactical decisions and an increasing share
of development decisions (given the growing weight of shareholders in relation to that of
the founders and partners), secondly, by a more routine managerial guidance.
All these governance mechanisms in the innovative companies are intended to overcome
the problems of asymmetric information and moral hazard, source of conflicts of interest.
They help ensure that funded innovative enterprise is managed in the interests of the
various partners.
Because of their influence on the strategy or decisions to guide the company, these
devices have effects on the life of the company or on its success. We present these effects
in the next section.

20
Section 2: Positive effects of governance model on innovative firms
The link between the governance and firm performance has been extensively studied in
the literature. This is mainly based on the agency theory which states that the
implementation of effective governance arrangements should reduce agency costs and
thus maximize shareholder wealth.
Thus, the specific governance mechanisms such as ownership structure, composition and
size of the Board, remuneration and managerial ownership level, may be associated with
streamlining the company's resources and a reduction in agency costs that can improve
the value of the business (Hamdouni, 2010).
However, the results of empirical research on this association are not relevant (Coles et
al., 2001). In addition, most of these results are for large companies. Very few studies
have examined the case of SMEs, including innovative enterprises.
We present the results of these studies by showing the impact of the ownership structure,
and the characteristics of the board and that can be verified in the case of innovative
firms.
2.1 Impact of the ownership structure
We describe the impact of this structure showing the influence of the participation of the
CEO, shareholders such as venture capitalists, employees, and the family or relatives of
the leader to the firm’s capital.

21
2.1.1 The participation of the CEO in firm’s capital
Given the risk posed by their R&D activities, investors or shareholders generally require
leaders or founders to participate in the innovative firm’s capital (Jensen and Meckling,
1976). This may reduce the conflicts resulting from asymmetric information and moral
hazard problems. A justification would be that shareholders-managers bear the
consequences of bad decisions and profit from those that increase the company's value
(Barnhart and Rosenstein, 1998). Consequently, managers having a more important
fraction of property and ownership provide more effort, have longer investment horizons
and make better investment decisions (selection of profitable or high value investment).
However, these managers-shareholders can be encouraged to make more conservative
decisions and therefore develop a risk aversion or opt for more risky and unprofitable
projects (Affes et al., 2007). The manager’s property therefore has effects on decision
making, strategic choices and business activities.
H1: The success of innovative firms is positively correlated with its CEO’s participation
in capital.
2.1.2 The presence of venture capitalists in the ownership structure
Their presence has the advantage of limiting the potential hazards to the extent it is often
conditioned on the performance of the innovative firm. Moreover, they make a thorough
analysis of the organization and the management team of the company and its activities.
They also push the firm to reorganize and develop faster. Indeed, they can attack and
eliminate inefficiency and waste situations faster. This often leads to dropping some
unprofitable activities to further develop the business. According to Gompers et al.
(1999), the innovative firms that are supported by these investors file for more patents
than those who are not.

22
In addition, previous studies show a correlation between the dynamics of innovation (in
the US) and venture capital, which is in fact the result of an absorption capacity by the
innovative company; that is to say, the way to assimilate, to exploit and to create new
knowledge (Ueda et al., 2006). Thus, the presence of the venture capital guide innovative
firms towards building an effective absorption capacity and resulting from its R&D
strategy, probably also influenced by this presence (Da Rin et al., 2007).
Similarly, venture capital participation acts as a quality signal of innovative firms for
other investors. In addition, studies increasingly focused on changing the behavior of the
innovative firm due to the presence of venture capital in its shareholding, showed that the
latter pushes to accelerate the transition of the new product to the market (Hellman and
Puri, 2000).
Moreover, venture capital is an alternative in terms of financing the debt for innovative
firms who find interlocutors who are connoisseurs of their real and everyday situation,
unlike traditional bankers. Their funding is therefore much more stable (three to five
years or longer), hence the advantage for their R&D activities (Senequier, 2008).
When venture capital leaves the capital during an IPO, it plays a role of certification for
the innovative firm. It is seen as a key factor of enterprise creation and development
(Zahra, 1993). The presence of venture capital therefore has obvious implications for
innovative firms’ policy and innovation strategy of funded, and influences the latter’s
R&D.
2.1.3 Employees’ capital ownership
In addition to the leader, employees are the main resource of innovative firms, since the
conduct of R&D projects is based on their human capital. In these circumstances they are
considered heirs to the value created along with other partners (shareholders, creditors,
leader) (Charreaux et al., 1998). According to other studies, this right implies the need for

23
a stronger control of the leader not only through the participation of employees in the
Board but also in the shareholding to align their interests with those of the company and
to motivate them (Nekhili et al., 2000). Besides, in most high technology startups,
employees or managers (usually engineers or technicians) are also partners or
shareholders and decide on strategic choices made for the enterprise. This is often the
case in the launching phase where access to capital is limited. Their participation also
depends on the will to associate them with the economic and financial performance of the
innovative firm, stimulating their efforts through financial or social benefits attached
thereto. Their presence in ownership contributes to the survival of enterprises
(Desbrieres, 2002).
H2: The success of innovative firms is positively correlated with its employees’
participation in capital.
2.1.4 Leader’s family participation in the firm
The family or relatives are unquestionably the first support of the leader or founder of n
innovative firm, especially in the early stages of development. Their participation can be
made directly or indirectly. Assuming it is direct, it consists of an acquisition of property
rights, votes and corporate control also. The immediate effect of this presence is the
convergence of interests between the members and the manager who trust each others
because they know each others since childhood or share strong ties. For all these reasons,
family businesses are deemed more effective (Lambert et al., 2008). This efficiency is
reflected through higher return on investment and sales growth or return on assets and
equity (Maury et al., 2006).
But their intervention may have a negative effect on the governance of the innovative
firm and can sometimes threaten its performance. Their participation actually affects
governance and financial structure of the start-up. For example, family members may be
reluctant, for fear of losing control, to opening the capital necessary to complete the R&D

24
project (Lerner, 1998). Moreover, these people are often not initiated at the management
or activity of the company and sometimes are impatient about the profitability of the
R&D project. Thus, capital stability, enterprise sustainability and growth are threatened
(Wu et al., 2007).
Apart from the ownership structure, other elements of governance have an impact on firm
performance such as innovative firms. This is the case of the characteristics of the board.
2.2 The Board characteristics
According to Charreaux (1997), the Board is a body that regulates the distribution of
power between management, shareholders and directors of a company to protect their
interests and to ensure that leaders duly take their responsibilities. In other words, this
body controls the management team and makes corrections if necessary. To do this, it has
two control systems: strategic control and financial control (Godard et al., 2000). The
first is characterized by an ex-ante evaluation of the decision-making process based on
subjective criteria. This assessment is completed by ex-post financial performance
criteria. In contrast, the second relies solely on objective financial criteria whether ex-
ante (budgets) or ex post (performance criteria, accounting and financial) (Charreaux,
1997). Thus through these control systems, the board may compel the behavior of leaders
and influence the nature of strategic decisions which in turn threaten the company's
performance.
We analyze how the characteristics of this Board, that is to say its composition, its size,
the sharing of responsibilities within it influence the performance.
2.2.1 Board composition

25
Board composition is about the allocation of members according to their primary
allegiance to shareholders (independent or unrelated director) or to leaders (related
director). Thus, research on governance suggests that a related director, a senior officer or
major shareholder, may not support the same strategy of value creation than that of an
independent director. The independent directors are treated as professional referees who
evaluate the performance of managers, determine their remuneration and replace them if
necessary (Core et al., 1999). Therefore, they look after the interests of shareholders
which consist of maximizing value through the performance of the company. This is
especially the case when there is a higher proportion of such type of members in the
Board. Their number is particularly important when the company is funded by venture
capital in order to exercise a counterweight to the control of managers (Hochberg, 2004).
Indeed, the representation of venture capital to the board can take many forms: either he
wants to (and can) be represented in this Board and appoints a representative in this case
or he does not want to (or cannot) be represented. In this case, he asks a trusted person to
be personally a director or mandate a third party because of these skills with the
agreement of the leader.
According to Lerner (1995), these investors are more present in the boards during periods
of change of managers, while other authors show that less experienced venture capital
suppliers (often very young) are less present in the Boards than more experienced ones.
By their presence, they have direct control (they are said to be active investors) of the
company and its governance (Gabrielsson et al., 2002). However, the effect of the
independent directors on the performance is controversial. Conyon et al. (1998) argue
that the minimal financial interests that have independent directors in the business may
diminish their vigilance and independence. They also argue that director independence
can be compromised if they were once associated with the company or if they are
appointed by the executive (CEO or founder). Similarly, their presence in the Board
seems adversely affect the performance of the company (Hermalin et al., 2003).
Also concerning the Board, a further distinction is made between internal directors
(company's management team members) and outside directors (non-executive board

26
members). These are the legal representatives of shareholders and are supposedly more
independent and sometimes more competent (when specialists) than inside directors.
Therefore, they have a positive influence on the control of officers’ management.
However, some studies have shown that companies with a majority of inside directors
have a greater capacity to address strategic issues and to opt for investment in R&D
(Klein, 1995).
Finally, venture capital companies may choose to be present in the Board of Directors or
Supervisory Board according to the legal form of funded companies and the shareholders'
agreement signed between the various parties. When they take part in the BOD, they
participate in strategic decision making, influence governance and company performance.
In addition to this typology of directors, we identify the size of the board as another
influential variable.
2.2.2 Board size
Several authors argue that the Board loses its effectiveness when it becomes too large
(Bhagat and Black, 2002). Indeed, large Boards are deemed unresponsive and relatively
inefficient in their operation since their ability to exercise a more active monitoring of
leaders is diminished. By cons, other studies consider that a large Board multiplies
expertise; even if that increases potential conflicts and costs, and in the end it slows down
decision making.
H3: The impact of corporate governance mechanisms on innovative firms’ success

27
Chapter 3
Research methodology
Section 1: Data collection
Once we have developed the research problem, questions, objectives and hypotheses, we
need to select the appropriate approach and population sample. This section namely
defines these two components of our research.
1.1 Data collection tool
In research methodology, it is argued that all research is based on two main approaches:
the quantitative approach and qualitative approach, which together form a third approach:
the mixed approach.
The focus of research is a systematic, disciplined and controlled process and is directly
related to research methods which are two: inductive method generally associated with
qualitative research consisting of moving from individual cases to general cases; while
the deductive method is usually associated with quantitative research whose characteristic
is to go from the general to the particular.
The present research has a deductive reasoning type and applies the quantitative
approach. The quantitative approach consists of basing the analysis on figures and
numbers either collected by the researcher on the field or already made available by
previous data collections. In our case, we will collect this data using the following
questionnaire.

28
1.2 Population sample
Our sample consists of Lebanese firms with different profiles. In practice, these firms
belong to different economic sectors, are of different sizes and have different ages. The
following figures illustrate their proportions according to these characteristics.
Figure 3.1 Distribution of sample according to sector
Our sample of firms has a proportion of 41.43% of firms in the Services sector, 32.86%
in Trade and 25.71% in Industrial sector.
Figure 3.2 Distribution of sample according to firm size

29
As for the size of participating firms, 50.00% of them have less than 10 employees,
32.86% between 10 and 50 employees and 25.71% more than 150 employees.
Figure 3.3 Distribution of sample according to firm age
While some of the firms are very young, others are much older. In fact, 42.86% of the
firms in our sample are aged between 5 and 15 years, 25.71% have less than 5 years of
age, 15.71% between 16 and 40 years and 15.71% more than 40 years.

30
Section 2: Variables
The questionnaire used in this research has the objective of measuring essential factors
for our analysis called variables which are the main components of our research
hypotheses. Besides the demographic factors included in the first section of the
questionnaire (section A), the questionnaire comprises three main variables: corporate
governance mechanisms, innovation success and firm life cycle.
2.1 Independent variables
In our research we have two independent variables: corporate governance mechanisms
and firm life cycle.
The first independent variable is measured through two main indicators: capital
composition and BOD composition. The first indicator includes four questions. These
inquire about the firm’s CEO contribution to capital, the existence of any venture capital,
the share of employees in capital and finally the share of CEO’s family members in
capital. As for the second indicator, it holds two questions asking about the BOD size and
the number of independent members within.
Corporate governance mechanisms:
Capital composition
1- Share of your firm’s CEO in capital: %
2- Does any venture capitalist contribute to your firm’s capital?
□ Yes □ No
3- Share of your firm’s employees in capital: %
4- Share of the CEO’s family members in firm’s capital: %

31
Board of directors’ composition
5- Number of independent directors in the Board:
6- Total number of members in the Board:
The second independent variable is measured by proposing to respondents to choose
among 5 different firm life cycle stages as follows:
Which of the following life cycle phases best describes your firm’s current situation?
□ Entrepreneurial phase: your firm is mainly focused on the creation of new
activities, has a light structure, is flexible and has a significant adaptability to
tackle rapid change. The founder(s) is the center of competence.
□ Growth phase: your firm is currently going through an increase of its activity
level. Its size is also growing and its activity risks are decreasing. The center of
competence is no longer only the founder but also other individuals in the firm.
□ Profit phase: your firm is already mature; it focuses on maintaining and
preserving its activity level rather than growing. Its structure has evolved
significantly and includes many divisions.
□ Restructuring phase: your firm is currently facing many powerful competitors
and its technologies are becoming obsolete. Thus it needs a serious restructuring to
tackle down this threat to its activity.
□ Decline phase: your firm’s activity is decreasing. Its structure is stagnant and
sales are dropping. Operational costs are also increasing.
2.2 Dependent variable
The dependent variable in our study is measured through three main indicators: product
innovation, services innovation, and process innovation. Each of these indicators includes
two measures: innovation degree and innovation type.
Innovation success:
Compared to its competitors in the same industry, to which degree did your firm succeed
to offer new PRODUCTS to its offer portfolio during the last two years?

32
None Small degree Moderate
degree
High degree Very high
degree
The new PRODUCTS your firm has added to its portfolio the last two years are mainly
(single choice):
□ already existing elements, but either improved, or recombined
□ new for the firm
to offer new SERVICES to its offer portfolio during the last two years?
degree
degree
The new SERVICES your firm has added to its portfolio the last two years are mainly
(single choice):
to offer new PROCESSES to its service or product delivery system, productive
processes, operational procedures and managerial processes during the last two years?
degree
degree
The new PROCESSES your firm has added to its portfolio the last two years are mainly
(single choice):

33
Chapter 4
Results and analysis
Section 1: Descriptive statistics
This section presents the descriptive statistics for every question included in the
questionnaire. The presentation order obeys the same order of questions in the
questionnaire. Since the results of section A in the questionnaire related to the firm’s
profile were included in the previous chapter, this section will have three sub-sections:
results for corporate governance mechanisms, results for innovation success, and results
for life cycle stage.
1.1 Corporate governance mechanisms
Table 4.1 Share of your firm’s CEO in capital (%)
Mean 44.93
Mode 40
Std. Deviation 21.42
Minimum 10
Maximum 80
CV 47.67%
According to the results, CEOs hold in average 44.93% of firms’ capitals. The minimum
share I our sample is 10% and the maximum is 80%.

34
Figure 4.1 Venture capitalist contribution to firm’s capital
In our sample of respondents, 65.71% of firms don’t have any venture capital where
34.29% have this type of capital.
Table 4.2 Share of firm’s employees in capital (%)
Mean 10.29
Mode 0
Minimum 0
Maximum 50
CV 185.04%
The employees’ share in capital is in average equal to 10.29% with a minimum of 0%
and a maximum of 50%. The CV expresses a very high dispersion of answers.

35
Table 4.3 Share of the CEO’s family members in firm’s capital (%)
Mean 26.36
Mode 0
Minimum 0
Maximum 80
CV 100.25%
In average, CEO’s family members hold 26.36% of firms’ capitals with a big dispersion
of answers relative to the mean.
Table 4.4 Number of independent directors in the Board
Mean 2.06
Mode 1
Std. Deviation 1.93
Minimum 0
Maximum 6
CV 93.59%
In average, the BODs of participating firms in our survey comprise 2 independent
directors.
Table 4.5 Total number of members in the Board
Mean 5.56
Mode 3
Std. Deviation 3.52
Minimum 1
Maximum 14
CV 63.43%
The BODs of participating firms in our survey have in average 6 members in total.

36
1.2 Innovation success
Table 4.6 Products innovation degree
1= None 2= Small degree 3= Moderate degree 4= High degree 5=
Very high degree
Mean 3.56
Mode 4
Std. Deviation 1.00
CV 28.17%
In average, the firms succeeded to a high degree in offering new products to their offer
portfolios during the last two years. (Mean = 3.56)
Figure 4.2 Products innovation type
According to the results, 65.71% of product innovations firms have added to their
portfolios consist of new products for these firms thus radical innovations, while 34.29%
consist of incremental innovations.

37
Table 4.7 Services innovation degree
1= None; 2= Small degree; 3= Moderate degree; 4= High degree; 5= Very high
degree
Mean 3.14
Mode 4
Std. Deviation 1.23
CV 39.17%
In average, the firms succeeded to a moderate degree in offering new services to their
offer portfolios during the last two years. (Mean = 3.14)
Figure 4.3 Services innovation type
According to the results, 57.14% of services innovations firms have added to their
portfolios consist of already existing elements but either improved or recombined thus
incremental innovations, while 42.86% consist of radical innovations.

38
Table 4.8 Processes innovation degree
degree
Mean 3.31
Mode 4
Std. Deviation 1.04
CV 31.47%
In average, the firms succeeded to a moderate degree to offer new processes to their
services or products delivery system, productive processes, operational procedures and
managerial processes during the last two years. (Mean = 3.31)
Figurer 4.4 Processes innovation type
According to the results, 65.71% of processes innovations firms have added to their
portfolios consist of already existing processes but either improved or recombined thus
incremental innovations, while 34.29% consist of radical innovations.

39
1.3 Firm life cycle
Figure 4.5 Firm’s life cycle phase
According to the results, 34.29% of the firms are in the Growth phase, also the same
percentage of firms are in the Profit phase, 15.71% in the Restructuring phase, 8.57% in
the Entrepreneurial phase and 7.14% in the Decline phase.

40
Section 2: Analysis
In this section, we present first the distribution of answers according to firms’ profile in
order to detect any effect of such factors on answers. Then we will present the tests for
the validation of or research hypotheses.
2.1 Inferential statistics
2.1.1 Inferential statistics according to Sector
Figure 4.6 Share of firm’s CEO in capital according to Sector
With a Sig = 0.000 < α, we can say that sector has an effect on answers where CEOs in
trade firms seem to have significantly lower contribution in capital than CEOs in services
and industrial firms.

41
Figure 4.7 Venture capitalist contribution to firm’s capital according to Sector
With a Sig = 0.001 < α, we can say that sector has an effect on answers where industrial
firms do not have any venture capital while services and trade do have such type of
capital.
Figure 4.8 Share of firm’s employees in capital according to Sector
With a Sig = 0.061 > α, we can say that sector has no effect on employees’ contribution
to capital.

42
Figure 4.9 Share of the CEO’s family members in firm’s capital according to Sector
With a Sig = 0.195 > α, we can say that sector has no effect on CEO’s family members
contribution to capital.
Figure 4.10 Number of independent directors in the Board according to Sector
With a Sig = 0.000 < α, we can say that sector has an effect on answers where the number
of independent BOD members seem to be significantly lower in trade and services firms
than in industrial ones.

43
Figure 4.11 Total number of members in the Board according to Sector
With a Sig = 0.000 < α, we can say that sector has an effect on answers where the BOD
size seems to be significantly smaller in trade and services firms than in industrial firms.
Figure 4.12 Products innovation degree according to Sector
degree
With a Sig = 0.053 > α, we can say that sector has no effect on firms’ product innovation
degree.

44
Figure 4.13 Products innovation type according to Sector
With a Sig = 0.000 < α, we can say that sector has an effect on answers where product
innovation in services firms only consist of radical innovations while in trade and
industrial firms we witness a combination of radical and incremental innovations.
Figure 4.14 Services innovation degree according to Sector
degree
With a Sig = 0.085 > α, we can say that sector has no effect on firms’ services innovation
degree.

45
Figure 4.15 Services innovation type according to Sector
With a Sig = 0.022 < α, we can say that sector has an effect on answers where radical
type of services innovations has a significant higher proportion in services firms than in
trade and industrial firms.
Figure 4.16 Processes innovation degree according to Sector
degree
With a Sig = 0.085 > α, we can say that sector has no effect on firms’ process innovation
degree.

46
Figure 4.17 Processes innovation type according to Sector
With a Sig = 0.511 > α, we can say that sector has no effect on firms’ process innovation
type.
Figure 4.18 Firm’s life cycle phase according to Sector
With a Sig = 0.000 < α, we can say that sector has an effect on answers where industrial
firms are found only in growth and profit phase while services firms have almost equal
shares in all life cycle stages. Moreover, trade firms are not found in entrepreneurial and
decline life cycle phases.

47
2.1.2 Inferential statistics according to Firm size
Figure 4.19 Share of firm’s CEO in capital according to Firm size
With a Sig = 0.003 < α, we can say that Firm size has an effect on answers where CEOs
in firms with more than 150 employees seem to have significantly lower contribution in
capital than CEOs in smaller firms.
Figure 4.20 Venture capitalist contribution to firm’s capital according to Firm size
With a Sig = 0.000 < α, we can say that Firm size has an effect on answers where firms
with 10-50 employees do not have any venture capital while other firms do have such
type of capital.

48
Figure 4.21 Share of firm’s employees in capital according to Firm size
with less than 10 employees seem to be the only ones having employees participating in
capital.
size
With a Sig = 0.195 > α, we can say that Firm size has an effect on CEO’s family
members contribution to capital.

49
Figure 4.23 Number of independent directors in the Board according to Firm size
With a Sig = 0.000 < α, we can say that Firm size has an effect on answers where the
number of independent BOD members seem to be significantly bigger in big firms with
more than 150 employees than in smaller firms.
Figure 4.24 Total number of members in the Board according to Firm size
BOD size seems to be significantly bigger in big firms with more than 150 employees
than in smaller firms.

50
Figure 4.25 Products innovation degree according to Firm size
degree
With a Sig = 0.053 > α, we can say that Firm size has no effect on firms’ product
innovation degree.
Figure 4.26 Products innovation type according to Firm size
With a Sig = 0.000 < α, we can say that Firm size has an effect on answers where product
innovation in firms with 10-50 employees only consist of radical innovations while in
other sizes of firms we witness a combination of radical and incremental innovations.

51
Figure 4.27 Services innovation degree according to Firm size
degree
with 10-50 employees seem to have a significant lower degree of services innovation
than other firms.
Figure 4.28 Services innovation type according to Firm size
With a Sig = 0.000 < α, we can say that Firm size has an effect on answers where radical
type of services innovations has a significant higher proportion in firms with less than 10
employees than in medium size firms or even in large firms where we notice only
incremental services innovations.

52
Figure 4.29 Processes innovation degree according to Firm size
degree
process innovation degree of large firms with more than 150 employees seems to be
significantly higher than in other categories of firms.
Figure 4.30 Processes innovation type according to Firm size
With a Sig = 0.000 < α, we can say that Firm size has an effect on firms’ process
innovation type where firms with medium size firms seem to only have incremental
process innovations.

53
Figure 4.31 Firm’s life cycle phase according to Firm size
With a Sig = 0.000 < α, we can say that Firm size has an effect on answers where large
firms are found only in growth and profit phase while small firms have almost equal
shares in all life cycle stages. Moreover, medium firms are not found in entrepreneurial
and decline life cycle phases.
2.1.3 Inferential statistics according to Firm age
Figure 4.32 Share of firm’s CEO in capital according to Firm age
With a Sig = 0.007 < α, we can say that Firm age has an effect on answers where CEOs
in firms with more than 40 years of age seem to have significantly lower contribution in
capital than CEOs in younger firms.

54
Figure 4.33 Venture capitalist contribution to firm’s capital according to Firm age
With a Sig = 0.000 < α, we can say that Firm age has an effect on answers where only
firms younger than 15 years old do have venture capital while older firms don’t have
such type of capital.
Figure 4.34 Share of firm’s employees in capital according to Firm age
With a Sig = 0.000 < α, we can say that Firm age has an effect on employees’
contribution to capital where only firms with less than 5 years of activity have employees
contributing to capital.

55
age
With a Sig = 0.000 < α, we can say that Firm age has an effect on answers where firms
older than 40 years have a significantly higher contribution of CEO’s family members to
capital than younger firms.
Figure 4.36 Number of independent directors in the Board according to Firm age
With a Sig = 0.000 < α, we can say that Firm age has an effect on answers where the
number of independent BOD members seem to be significantly higher in firms less than 5
years old and more than 40 years old than in other firms.

56
Figure 4.37 Total number of members in the Board according to Firm age
With a Sig = 0.000 < α, we can say that Firm age has an effect on answers where the
BOD size seems to be significantly bigger in firms older than 40 years than in younger
firms.
Figure 4.38 Products innovation degree according to Firm age
1= None 2= Small degree 3= Moderate degree 4= High degree 5=
Very high degree
with less than 16 years seem to have significantly higher degree of product innovation.

57
Figure 4.39 Products innovation type according to Firm age
With a Sig = 0.000 < α, we can say that Firm age has an effect on answers where product
innovation in firms with more than 16 years of activity only consist of radical innovations
while in other firms we witness a combination of radical and incremental innovations.
Figure 4.40 Services innovation degree according to Firm age
degree
with less than 16 years of age have significantly higher degree of services innovation than
other age categories of firms.

58
Figure 4.41 Services innovation type according to Firm age
With a Sig = 0.000 < α, we can say that Firm age has an effect on answers where radical
type of services innovations only exists in firms with less than 16 years of age.
Figure 4.42 Processes innovation degree according to Firm age
degree
with less than 16 years of age have significantly higher degree of services innovation than
other age categories of firms.

59
Figure 4.43 Processes innovation type according to Firm age
With a Sig = 0.000 < α, we can say that Firm age has an effect on answers where radical
type of process innovations only exists in firms with less than 16 years of age.
Figure 4.44 Firm’s life cycle phase according to Firm age
With a Sig = 0.000 < α, we can say that Firm age has an effect on answers where only
firms with 16-40 years of age are found only in decline phase while only 5-15 years old
firms are in entrepreneurial life cycle stage.

60
2.2 Test of hypotheses
The score of innovative firms ranges between 6 and 30, when this score is close to 20 we
can consider the firm innovative.
H1: The success of innovative firms is positively correlated with its CEO’s
Table 4.9 Correlation test for H1
CEO’s participation in
capital
The success of innovative firms +0.308 (Sig = 0.010)
The correlation test turned out to be slightly positive and significant, therefore we can say
that research hypothesis H1 is accepted.
H2: The success of innovative firms is positively correlated with its employees’
Table 4.10 Correlation test for H2
Employees’ participation in
capital
The success of innovative firms +0.247 (Sig = 0.039)
The correlation test turned out to be slightly positive and significant, therefore we can say
that research hypothesis H2 is accepted.

61
H3: The impact of corporate governance mechanisms on innovative firms’ success
In order to obtain the level of corporate governance mechanisms we calculated the
average of Share of firm’s CEO in capital, Share of firm’s employees in capital and Share
of CEO’s family members in firm’s capital.
Table 4.11 Correlation between corporate governance and firm innovation
Innovative firms
Corporate governance mechanisms +0.353 (Sig = 0.003)
The correlation is slightly positive and significant without the effect of life cycle.
Table 4.12 Correlation between corporate governance mechanisms and innovative
firm’s success according to life cycle
Cycle Sig Pearson correlation
Entrepreneurial phase 0.003 0.885
Growth phase 0.898 0.029
Profit phase 0.042 0.418
Restructuring phase 0.171 -0.444
Decline phase 0.017 -0.941
The nature of the relation between corporate governance mechanisms and firm
innovation significantly differs according to life cycle, therefore we can say that research
hypothesis H3 is accepted.

62
Conclusion
The success of firms in general and in particular innovative firms can be embodied in
multiple approaches. To achieve this, the theoretical and empirical literature emphasizes
the critical role played by the funding, governance and especially capital venture
financing, seen as a solution to financial constraints and governance problems in these
companies.
Nevertheless, these earlier results mostly concern companies in other countries. There are
actually few studies, if any at all, which is specifically focused on the Lebanese
innovative companies. Thus, we analyze in our research the factors of innovation success
or failure of innovative companies in the Lebanese context in terms of corporate
governance and firm lifecycle.
This research therefore focuses on the innovation requirements of Lebanese companies.
Today, innovation is at the heart of competitive advantage for long-term growth and
differentiation of companies in a global economy based on knowledge. However,
although innovation is becoming more a recurrent and strategic activity, the fact is that
innovation retains its nature of uncertainty for many companies. Its management
therefore requires vision, organizational transformation and creativity, inaccessible to all
kind of firms. This research aims to reflect the reality of innovative Lebanese firms
facing an uncertain external and internal environment.
The problems raised by the management of innovation in the enterprise are many and this
study does not claim to be exhaustive. Nevertheless, it aims to highlight the effect of
corporate governance and firm life cycle on these companies’ radical and incremental
innovation success.
The investigation we made through this research among Lebanese firms led to various
findings. First of all, the economic sector of Lebanese innovative firms has an effect on

63
many characteristics of these firms. In fact, results show that CEOs in trade firms have
significantly lower contribution in capital than CEOs in services and industrial firms,
industrial firms do not have any venture capital while services and trade do have such
type of capital and that BODs in trade and services firms seem to be of smaller size and
comprise less independent directors than industrial firms. As for innovation, services
firms seem to have more radical innovations than other firms.
Second, firm size was also proven to have an impact on various characteristics of
Lebanese innovative firms. Results show that firm size has a negative effect on CEO
contribution to capital and employees’ contribution to capital. Meanwhile, firm size has a
positive effect on venture capital contribution, BOD size, BOD’s number of independent
directors, and process innovation degree.
Third, firm age seem to have an effect on all components. In fact, firm age has a negative
impact on CEO’s contribution to capital, venture capital contribution, employees’
contribution to capital, product innovation degree, and service innovation degree.
Meanwhile, firm age has a positive impact on CEOs family members’ contribution to
capital, number of BOD independent directors, and BOD size.
But most importantly, this research could confirm the three research hypotheses
suggested. Hence, it was proven true that the success of innovative firms is positively
correlated with its CEO’s participation in capital. In other words, innovative firms with
higher capital shares in the hands of the CEO succeed better than other firms in their
innovations.
Moreover, the assumption that the success of innovative firms is positively correlated
with its employees’ participation in capital was also proven valid. The results confirm
that innovative firms with higher capital shares among their employees attain higher
levels of innovation.
Last but not least, the assumption that the impact of corporate governance mechanisms on
innovative firms’ success significantly differs according to their life cycle was also

64
proven valid and true. In fact, the nature of the relation between corporate governance
mechanisms and firm innovation significantly differs according to life cycle where firms
in entrepreneurial phase witness the highest positive impact of CG mechanisms on their
innovation level followed by the firms in the profit phase of their life cycle. Meanwhile,
it is worth noticing that the correlation turned out to be negative for firms in their decline
phase. Therefore we can say that research hypothesis H3 is accepted.
At this point, we want to mention that our research has its own limitations. The time and
budget constraint pushed us to limit the size of the sample. Moreover, the absence of
official statistics concerning Lebanese firms and their classifications formed an obstacle
in our sampling procedure. This research also has limitations in terms of results.
Therefore, it is recommended for future research to study again the same topic but with a
deeper data collection in terms of sample size and innovation details and probably to take
into consideration financial performance indicators.

65
Bibliography
Barnhart, S., and Rosenstein, S., (1998). Board Composition, Managerial Ownership, and
Firm Performance : An Empirical Analysis, Financial Review, vol. 33, p. 1-16.
Bhagat, S., and Black, B., (2002). The Non-Correlation between Board Independence and
Long Term Performance, Journal of Corporation Law, vol. 27, n° 2, p. 231-273.
Charreaux, G., and Desbrieres, P., (1998). « Gouvernance des entreprises : valeur
partenariale contre valeur actionnariale, Revue Finance Contrôle Stratégie, 1, N° 2.
Coles, J.W., et al. (2001). An Examination of the Relationship of Governance
Mechanisms to Performance, Journal of Management, vol. 27, p. 23-50.
Conyon, M.J., and Peck, S.I., (1998). Board Control, Remuneration Committees, and
Management Remuneration, Academy of Management Journal, vol. 41, p. 135-145.
Coyne, W.E. (2001). How 3M innovates for long-term growth, Research Technology
Management, March-April, p.21-24.
Da Rin, M. and Fabiana, M, (2007). The Effect of Venture Capital on Innovation
Strategies, NBER Working Papers, n°13636.
Danneels, E. (2002). The dynamics of product innovation and firm competences,
Strategic Management Journal, Vol.23, p.1095-1121.
Depret, M-H., et al. (2004). Governance of young innovative enterprises: an analytical
approach through biotechnological firms, Finance Contril Strategy, vol.7.
Dubocage, E., et al., (2008). The role of capital ventures in biotech firms’ strategies,
Finance Control Strategy, vol. 11.
Ferrari, M. (2002). Outsourcing R&D according to Cisco, Expansion Management
Review, December, p.87-93.

66
Foster, R., (1986). Innovation: The Attacker’s Advantage, Summit Books, New York.
Gabrielsson, J., et al. (2002). The Venture Capitalist and the Board of Directors in SMEs:
Roles and Processes, Venture Capital, 4.
Gompers, P., et al. (1999). What Drives Venture Capital Fundraising?, Brookings Papers
on Economic Activity – Microeconomics, The Brookings Institution.
Greiner L.E. (1972). Evolution and revolution as organizations grow, Harvard Business
Review, July- August.
Hamdouni, A., (2010). Impact of capital-investment implication in firm governance on
stakeholders’ wealth, International Governance, 17-18 Mai, Metz.
Hellman, T., and Puri, M., (2000). The interaction between product market and financing
strategy: the role of venture capital, The Review of Financial Studies, vol.13.
Hermalin, B.E. et Weisbach, M.S., (2003). Boards of Directors as an Endogenously
Determined Institution: A Survey of the Economic Literature, Economic Policy Review,
vol. 9, n° 1, p. 7-26.
Hochberg, Y., (2004). Venture capital and corporate governance in the newly public firm,
Unpublished working paper, Cornell University.
Jensen, M., and Meckling, W., (1976). Theory of the firm: managerial behavior, agency
costs, and Ownership structure, Journal of financial Economics, 3.
Kaplan, S., and Strömberg, P., (2003). Financial Contracting Theory Meets the Real
World: an Empirical Analysis of Venture Capital Contracts, Review of economic studies,
70.
Lambert, G., and Ouedraogo, N., (2008). Empirical investigation on Iso9001 quality
management system’s impact on organizational learning and process performances, Total
Quality Management &Business Excellence, Vol. 19, n°10.
Lerner, J., (1998). The control of technology alliances: an empirical analysis of the
biotechnology industry, Journal of Industrial Economics, 46, 125–156.

67
Liouville, J. (2006). Innovation degree and performance of enterprises: limits of current
research and new perspectives for innovation management, AIMS, Geneva.
Mangematin, V. (2003). Biotechnological SME: various competing business models, in
P. Mustar P. et H. Penan (Eds.), Innovation Encyclopedia, Economica.
Maury, B., (2006). Family Ownership and Firm Performance: Empirical Evidence from
Western European Corporations, Journal of Corporate Finance, 12, 321-341.
Mintzberg H., (1984). Power and organization life cycles, The Academy of Management
Review, Vol. 9, no. 2.
Nekhili, M., and Poincelot, E., (2000). La fonction R&D et la latitude managériale : une
analyse théorique, Finance Contrôle Stratégie, Volume 3, N° 1, p. 5 - 28.
Nordstrom C, Choi G., and Llorach C., (2012). The organization life cycle stages and
effectiveness, a study of Swedish Gazelle Companies, JIBS.
Odiorne, George, S. (1984), Human Resources Strategies for the Nineties, Hax.
Phelps, R., Adams, R., & Bessant, J. (2007). Life cycles of growing organizations: A
review with implications for knowledge and learning. International Journal of
Management Reviews, 9, 1, 1-30.
Senequier, D, (2008). Impact of private equity on the economy, CAE, n°75.
Thomke, S. (2001). Enlightened experimentation: The imperative for Innovation,
Harvard Business Review, February, p.67-75.
Ueda, M., et al. (2006). Venture capital and Industrial Innovation, Mimeo.
Van Vliet, V. (2012). Product life cycle by Raymond Vernon, ToolsHero.
Verona, G. Ravasi, D. (2003). Unbundling dynamic capabilities: an exploratory study of
continuous product innovation, Industrial and Corporate Change, Vol.12, N°3, p.577-
606.

68
Wasserman, N., (2003). Founder-CEO Succession and the Paradox of Entrepreneurial
Success, Organization Science, vol. 14, n° 2, March-April, p. 149-172.
Wu, Z., et al. (2007). Effects of family ownership and management on small business
equity financing, Journal of Business Venturing, Vol. 22.
Zahra, A., (1993). Business strategy, technology policy and firm performance, Strategic
Management Journal, vol.14.

Memoire

Recommended

Recommended

More Related Content

What's hot

What's hot (19)

Viewers also liked

Viewers also liked (13)

Similar to Memoire

Similar to Memoire (20)

Memoire