The Effects of the Corporate Governance System on Innovation Activities in Croatia
The Effects of the Corporate Governance System on Innovation Activities in Croatia

Summary/Abstract: The paper tackles the implications of the system of corporate governance on the level and prevalent modes of innovation activities and ways in which innovations are developed, financed and implemented within enterprises. The paper aims to contribute to the discussions on corporate governance and innovation by explaining the interrelationship between institutional conditions, corporate strategies related to innovation, and innovation activities, and by applying the framework to Croatia, as a (post-)transition country with a specific developmental pattern. However, the current debate about the effects of basic systems of corporate governance (Anglo-American and continental European) in relation to innovative activities cannot be adequately applied to (post-)transition countries. In Croatia, despite regulatory and capital market-related improvements in the last decade, the system of corporate governance is still relatively underdeveloped; as such, it is insufficiently conducive to innovation. The effectiveness of a national innovation system is reflected in the complexity of innovative activities within firms and their effects on competitiveness of firms and sectors. The corporate governance system currently seems inadequate for development of a knowledge-based economy, because it primarily supports non-complex innovation activities. This is reflected in the marginalization of innovation within corporate strategies, which lead to their low economic effects. The lack of cooperative stakeholder relationships precludes risk sharing that could facilitate innovation projects with higher value added. This can partly be addressed by external investments (accompanied by technological and managerial improvements) into greenfield projects and established companies – especially innovative small and mediumsized enterprises with a high growth potential.

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