Research and development, cash flow, agency and governance: UK large companies

► The literature offers inconsistent evidence on whether corporate governance affects R&D. ► This paper estimates R&D expenditure by a panel of top companies listed in UK 2000–2005. ► Conventional measures of “good governance” appear to depress R&D. ► Financial constraints on R&D are lower when interacted with measures of governance. ► CEO ownership seems to affect R&D positively. This paper investigates the determinants of R&D expenditure using a sample of UK listed companies with the highest spend from 2000 to 2005. We investigate the effect of corporate governance and ownership on R&D, using panel data. The results provide some evidence that more governance tends to depress R&D activity, a finding that is robust to whether a composite or disaggregated index of governance is used. One innovation of the paper is that we treat agency and finance effects interactively. The ownership stake of the CEO appears to be supportive for R&D.