Board Composition and Innovation
Keywords:
Corporate boards, Innovation
Abstract
Corporate boards make key economic and financial decisions. Diversity in the boardroom, on hand can lead to higher innovation by increasing interaction between heterogeneous agents; on the other hand it can lead to more conflict based on the predictions of social identity theory. In an examination of US firms from 1999 to 2006, this study finds that demographic diversity; directors’ individual characteristics and affiliation are associated with higher innovation in form of patents and quality of innovation in form of citations.
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References
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Adams R.B., and P. Funk, 2011. Beyond the glass ceiling: Does Gender Matter. Management Science, 219-235.
Aghion, P., J. V. Reenen, and L. Zingales., 2013. Innovation and institutional ownership. American Economic Review 103(1), 277-304.
Anderson R., T. Bates, J. Bizjak, and M. Lemmon. 2000. Corporate governance and firm diversification, Financial Management, 29, 5-22
Barber, B., and T. Odean. 2001. Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics 116(1), 261–292.
Bantel, K., and S. Jackson, 1989. Top management and innovations in banking: Does the composition of the top team make a difference? Strategic Management Journal 10, 107–124.
Bernasek, A., and S. Shwiff, 2001. Gender, risk, and retirement. Journal of Economic Issues 35, 345-356.
Blinder, A and J. Morgan, 2000. Are two heads better than one? An experimental analyses of group versus individual decision making, NBER Working Paper No. 7909.
Borokhovich, K. A., R. Parrino, and T. Trapani, 1996. Outside directors and CEO selection. Journal of Financial and Quantitative Analysis, 31, 337-355
Broome, L L., Conley, J. M. and K.D. Krawiec, 2011. Dangerous Categories: Narratives of Corporate Board Diversity. North Carolina Law Review 89(8), 759-80
Bruce, A.C., and J.E.V. Johnson, 1994. Male and female betting behavior: New perspectives, Journal of Gambling Studies 10, 183-198.
Carlson, R., and T.J. Karlsson, 1970. Age, cohorts, and the generation of generations. American Sociological Review 35, 710-718.
Carpenter, M. A. 2002. The implications of strategy and social context for the relationship between top management team heterogeneity and firm performance. Strategic Management Journal 23, 275–284.
Cohen, W. M., and D. A. Levinthal, 1990. Absorptive capacity: A new perspective of learning and innovation. Administrative Science Quarterly 35 (1), 128–152.
Croson, R., and U. Gneezy, 2009. Gender differences in preferences. Journal of Economic Literature 47, 448-474.
Coles, J., N. Daniel, and L. Naveen, 2008. Boards: Does One Size Fit All? Journal of Financial Economics 87, 329–356.
Cooper, D. J., and J. H. Kagel, 2005. Are Two Heads Better Than One? Team versus Individual Play in Signaling Games. American Economic Review 95 (3), 477-509.
Denis D. J. and A. Sarin, 1999. Ownership and board structures in publicly traded corporations, Journal of Financial Economics, 52, 187-223
Dwyer, S., Richard, O., and K. Chadwick, 2003. Gender diversity in management and firm performance: the influence of growth orientation and organizational culture. Journal of Business Research 56, 1009–1019.
Dwyer, P., J. Gilkeson, and J. List, 2002. Gender differences in revealed risk taking: Evidence from mutual fund investors. Economics Letters 76(2), 151–158.
Estelyiova, K. and T. M. Nisar, 2012. The Determinants and Performance Effects of Diverse Nationality Boards. Unpublished working paper.
Faleye, O., 2009. Classified boards, stability, and strategic risk taking. Financial Analysts Journal 65, 54–65.
Fama, E. F., and M. C. Jensen, 1983. Separation of ownership and control, Journal of Law and Economics, 26, 301-325
Fich, E., and A. Shivdasani, 2006. Are busy boards effective monitors? Journal of Finance 61, 689-724.
Finkelstein, S. and D.C. Hambrick, 1990. Top-Management-Team Tenure and Organizational Outcomes: the Moderating Role of Managerial Discretion. Administrative Science Quarterly 35, 484-503.
Francis, B., Hasan, I., Sharma, Z., and M. Waisman, 2016. Incentives and innovation: Evidence from CEO compensation contracts. Unpublished Working paper.
Francis, B. B., Hasan, I., Huang, Y., and Sharma, Z. (2012a). Do banks value innovation? Evidence from US Firms. Financial Management 41(1), 159-185.
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Griliches, Z., Pakes A. and B. H. Hall. (1987). The Value of Patents as Indicatiors of Inventive Activity," Economic Policy and Technical Performance, eds. P. Dasgupta and P. Stoneman, pp. 97-124. Cambridge: Cambridge University Press.
Hall B., Jaffe, A., M. Trajtenberg, 2001. The NBER patent citations data file: Lessons, insights and methodological tools. NBER Working Paper #8498.
Hall, B., and R. Ziedonis, 2001. The determinants of patenting in the U.S. semiconductor industry, 1980–1994. RAND Journal of Economics 32, 101–128.
Hall B., Jaffe, A., M. Trajtenberg, 2005. Market Value and Patent Citations. Rand Journal of Economics 36 (1), 16 – 38.
Holmstrom, B., 1989. Agency Costs and Innovation, Journal of Economic Behavior and Organization 12, 305-327
Huang J., and D.J. Kisgen, 2014. Gender and corporate finance: Are male executives overconfident relative to female executives? Journal of Financial Economics 108, 822– 839.
Hudgens, G. A., and L. T. Fatkin, 1985. Sex differences in risk taking: Repeated sessions on a computer-simulated task. Journal of Psychology: Interdisciplinary and Applied 119, 197-206.
Johnson, J.E.V., and P.L. Powell, 1994. Decision making, risk and gender: Are managers different? British Journal of Management 5, 123-138.
Klein, A., 1998. Firm performance and board committee structure, Journal of Law and Economics 41, 137-165
Kugler, T., Kausel, E., and M.G. Kocher, 2012. Are groups more rational than individuals? A review of interactive decision making in groups. WIREs Cognitive Science 3, 471–482.
Lundvall, B., 1985. Product innovation and user producer interaction. Series om Industriel Udvikling 31.
Lundvall, B. (Ed.), 1992. National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning. Pinter Publishers, London.
Lundvall, B. (Ed.), 2002. Growth, Innovation and Social Cohesion: The Danish Model. Elgar Publisher .
Masulis, Ronald W., Cong Wang, Fei Xie, 2012. Globalizing the boardroom - The effects of foreign directors on corporate governance and firm performance, Journal of Accounting and Economics 53 (3), pp. 527-554
Mayers, D., Shivadashani, A., and C. Smith, 1997. Board composition and corporate control: Evidence from the insurance industry. Journal of Business 70 (1).
Milliken, F. J., and L.L. Martins, 1996. Searching for common threads: Understanding the multiple effects of diversity in organizational groups. The Academy of Management Review 21 (2), 402–433.
Murray, A., 1989. Top management heterogeneity and firm performance. Strategic Management Journal 10, 125–141.
Niederle, M., and L. Vesterlund, 2007. Do women shy away from competition? Do men compete too much? Quarterly Journal of Economics 122, 1067-1101.
Østergaard, C. R., Timmermans, B., and K. Kristinsson, 2011. Does a different view create something new? The effect of employee diversity on innovation. Research Policy 40(3).
Richard, O. C. 2000. Racial diversity, business strategy and firm performance: A resource- based view. Academy of Management Journal, 43, 164-177.
Richard, O. C., Barnett, T., Dwyer, S., and K. Chadwick, 2004. Cultural diversity in management, firm performance, and the moderating role of entrepreneurial orientation dimensions. Academy of Management Journal, 47, 255-266.
Richard, O., McMillan, A., Chadwick, K., and S. Dwyer, 2003. Employing an innovation strategy in racially diverse workforces. Group & Organization Management, 28, 107-126.
Rockenbach, B., Abdolkarim S., and B. Mathauschek, 2007. Teams Take the Better Risks. Journal of Economic Behavior and Organization, 63(3), 412–22.
Ruef, M., Aldrich, H., and N. Carter, 2003. The Structure of Founding Teams: Homophily, Strong Ties, and Isolation among U.S. Entrepreneurs. American Sociological Review, 68(2), 195-222.
Sapra, H., Subramanian, A. and Subramanian, K. 2014. Corporate governance and innovation: Theory and evidence. Journal of Financial and Quantitative Analysis 49(4).
Schumpeter, J. A., 1934. The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and Business Cycle. Cambridge, Mass: Harvard University Press.
Seru, A., 2014. Firm boundaries matter: Evidence from conglomerates and R&D activity. Journal of Financial Economics 111(2), 381-405.
Shadab, H.B. 2008. Innovation and corporate governance: The impact of Sarbanes Oxley. The University of Pennsylvania Journal of Business and Employment Law 10, 4, 955-1008
Sunden, A., and B. Surette, 1998. Gender differences in the allocation of assets in retirement savings plans. American Economic Review 88(2), 207–211.
Taylor, R., 1975. Age and experience as determinants of managerial information processing and decision making performance. Academy of Management Journal 18, 74-81.
Williams, K., and C. O’Reilly, C., 1998. Demography and diversity in organizations: A review of 40 years of research. In: Staw, B., Cummings, L. (Eds.), Research in Organizational Behavior. JAI Press, Greenwich, pp. 77–140.
Woodman, R., Sawyer, J., and R. Griffin, 1993. Toward a theory of organizational creativity. The Academy of Management Review 18 (2), 293
van der Vegt, G., Janssen, O., 2003. Joint impact of interdependence and group diversity on innovation. Journal of Management 29 (5), 729–751.
Vroom, V., and B. Pahl, 1971. Relationship between age and risk-taking among managers. Journal of Applied Psychology 55, 399-405.
Weber, A., and C. Zulehner, 2010. Female hires and the success of start-up firms, American Economic Review 100, 358-361.
Wiersema, M. F., & Bantel, K. A. 1992. Top management team demography and corporate strategic change. Academy of Management Journal, 35: 91–121
Yermack, D., 1996, Higher market valuation of companies with a small board of directors, Journal of Financial Economics 40, 185-212
Zajac, E. J., Golden, B. R., and S.M. Shortell, 1991. New organizational forms for enhancing innovation: The case of internal corporate joint ventures. Management Science 37 (2), 170–184.
Adams R.B., and P. Funk, 2011. Beyond the glass ceiling: Does Gender Matter. Management Science, 219-235.
Aghion, P., J. V. Reenen, and L. Zingales., 2013. Innovation and institutional ownership. American Economic Review 103(1), 277-304.
Anderson R., T. Bates, J. Bizjak, and M. Lemmon. 2000. Corporate governance and firm diversification, Financial Management, 29, 5-22
Barber, B., and T. Odean. 2001. Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics 116(1), 261–292.
Bantel, K., and S. Jackson, 1989. Top management and innovations in banking: Does the composition of the top team make a difference? Strategic Management Journal 10, 107–124.
Bernasek, A., and S. Shwiff, 2001. Gender, risk, and retirement. Journal of Economic Issues 35, 345-356.
Blinder, A and J. Morgan, 2000. Are two heads better than one? An experimental analyses of group versus individual decision making, NBER Working Paper No. 7909.
Borokhovich, K. A., R. Parrino, and T. Trapani, 1996. Outside directors and CEO selection. Journal of Financial and Quantitative Analysis, 31, 337-355
Broome, L L., Conley, J. M. and K.D. Krawiec, 2011. Dangerous Categories: Narratives of Corporate Board Diversity. North Carolina Law Review 89(8), 759-80
Bruce, A.C., and J.E.V. Johnson, 1994. Male and female betting behavior: New perspectives, Journal of Gambling Studies 10, 183-198.
Carlson, R., and T.J. Karlsson, 1970. Age, cohorts, and the generation of generations. American Sociological Review 35, 710-718.
Carpenter, M. A. 2002. The implications of strategy and social context for the relationship between top management team heterogeneity and firm performance. Strategic Management Journal 23, 275–284.
Cohen, W. M., and D. A. Levinthal, 1990. Absorptive capacity: A new perspective of learning and innovation. Administrative Science Quarterly 35 (1), 128–152.
Croson, R., and U. Gneezy, 2009. Gender differences in preferences. Journal of Economic Literature 47, 448-474.
Coles, J., N. Daniel, and L. Naveen, 2008. Boards: Does One Size Fit All? Journal of Financial Economics 87, 329–356.
Cooper, D. J., and J. H. Kagel, 2005. Are Two Heads Better Than One? Team versus Individual Play in Signaling Games. American Economic Review 95 (3), 477-509.
Denis D. J. and A. Sarin, 1999. Ownership and board structures in publicly traded corporations, Journal of Financial Economics, 52, 187-223
Dwyer, S., Richard, O., and K. Chadwick, 2003. Gender diversity in management and firm performance: the influence of growth orientation and organizational culture. Journal of Business Research 56, 1009–1019.
Dwyer, P., J. Gilkeson, and J. List, 2002. Gender differences in revealed risk taking: Evidence from mutual fund investors. Economics Letters 76(2), 151–158.
Estelyiova, K. and T. M. Nisar, 2012. The Determinants and Performance Effects of Diverse Nationality Boards. Unpublished working paper.
Faleye, O., 2009. Classified boards, stability, and strategic risk taking. Financial Analysts Journal 65, 54–65.
Fama, E. F., and M. C. Jensen, 1983. Separation of ownership and control, Journal of Law and Economics, 26, 301-325
Fich, E., and A. Shivdasani, 2006. Are busy boards effective monitors? Journal of Finance 61, 689-724.
Finkelstein, S. and D.C. Hambrick, 1990. Top-Management-Team Tenure and Organizational Outcomes: the Moderating Role of Managerial Discretion. Administrative Science Quarterly 35, 484-503.
Francis, B., Hasan, I., Sharma, Z., and M. Waisman, 2016. Incentives and innovation: Evidence from CEO compensation contracts. Unpublished Working paper.
Francis, B. B., Hasan, I., Huang, Y., and Sharma, Z. (2012a). Do banks value innovation? Evidence from US Firms. Financial Management 41(1), 159-185.
Frijns, B., Dodd, O., & Cimerova, H. (2016). The impact of cultural diversity in corporate boards on firm performance. Journal of Corporate Finance forthcoming.
Griliches, Z., Pakes A. and B. H. Hall. (1987). The Value of Patents as Indicatiors of Inventive Activity," Economic Policy and Technical Performance, eds. P. Dasgupta and P. Stoneman, pp. 97-124. Cambridge: Cambridge University Press.
Hall B., Jaffe, A., M. Trajtenberg, 2001. The NBER patent citations data file: Lessons, insights and methodological tools. NBER Working Paper #8498.
Hall, B., and R. Ziedonis, 2001. The determinants of patenting in the U.S. semiconductor industry, 1980–1994. RAND Journal of Economics 32, 101–128.
Hall B., Jaffe, A., M. Trajtenberg, 2005. Market Value and Patent Citations. Rand Journal of Economics 36 (1), 16 – 38.
Holmstrom, B., 1989. Agency Costs and Innovation, Journal of Economic Behavior and Organization 12, 305-327
Huang J., and D.J. Kisgen, 2014. Gender and corporate finance: Are male executives overconfident relative to female executives? Journal of Financial Economics 108, 822– 839.
Hudgens, G. A., and L. T. Fatkin, 1985. Sex differences in risk taking: Repeated sessions on a computer-simulated task. Journal of Psychology: Interdisciplinary and Applied 119, 197-206.
Johnson, J.E.V., and P.L. Powell, 1994. Decision making, risk and gender: Are managers different? British Journal of Management 5, 123-138.
Klein, A., 1998. Firm performance and board committee structure, Journal of Law and Economics 41, 137-165
Kugler, T., Kausel, E., and M.G. Kocher, 2012. Are groups more rational than individuals? A review of interactive decision making in groups. WIREs Cognitive Science 3, 471–482.
Lundvall, B., 1985. Product innovation and user producer interaction. Series om Industriel Udvikling 31.
Lundvall, B. (Ed.), 1992. National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning. Pinter Publishers, London.
Lundvall, B. (Ed.), 2002. Growth, Innovation and Social Cohesion: The Danish Model. Elgar Publisher .
Masulis, Ronald W., Cong Wang, Fei Xie, 2012. Globalizing the boardroom - The effects of foreign directors on corporate governance and firm performance, Journal of Accounting and Economics 53 (3), pp. 527-554
Mayers, D., Shivadashani, A., and C. Smith, 1997. Board composition and corporate control: Evidence from the insurance industry. Journal of Business 70 (1).
Milliken, F. J., and L.L. Martins, 1996. Searching for common threads: Understanding the multiple effects of diversity in organizational groups. The Academy of Management Review 21 (2), 402–433.
Murray, A., 1989. Top management heterogeneity and firm performance. Strategic Management Journal 10, 125–141.
Niederle, M., and L. Vesterlund, 2007. Do women shy away from competition? Do men compete too much? Quarterly Journal of Economics 122, 1067-1101.
Østergaard, C. R., Timmermans, B., and K. Kristinsson, 2011. Does a different view create something new? The effect of employee diversity on innovation. Research Policy 40(3).
Richard, O. C. 2000. Racial diversity, business strategy and firm performance: A resource- based view. Academy of Management Journal, 43, 164-177.
Richard, O. C., Barnett, T., Dwyer, S., and K. Chadwick, 2004. Cultural diversity in management, firm performance, and the moderating role of entrepreneurial orientation dimensions. Academy of Management Journal, 47, 255-266.
Richard, O., McMillan, A., Chadwick, K., and S. Dwyer, 2003. Employing an innovation strategy in racially diverse workforces. Group & Organization Management, 28, 107-126.
Rockenbach, B., Abdolkarim S., and B. Mathauschek, 2007. Teams Take the Better Risks. Journal of Economic Behavior and Organization, 63(3), 412–22.
Ruef, M., Aldrich, H., and N. Carter, 2003. The Structure of Founding Teams: Homophily, Strong Ties, and Isolation among U.S. Entrepreneurs. American Sociological Review, 68(2), 195-222.
Sapra, H., Subramanian, A. and Subramanian, K. 2014. Corporate governance and innovation: Theory and evidence. Journal of Financial and Quantitative Analysis 49(4).
Schumpeter, J. A., 1934. The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and Business Cycle. Cambridge, Mass: Harvard University Press.
Seru, A., 2014. Firm boundaries matter: Evidence from conglomerates and R&D activity. Journal of Financial Economics 111(2), 381-405.
Shadab, H.B. 2008. Innovation and corporate governance: The impact of Sarbanes Oxley. The University of Pennsylvania Journal of Business and Employment Law 10, 4, 955-1008
Sunden, A., and B. Surette, 1998. Gender differences in the allocation of assets in retirement savings plans. American Economic Review 88(2), 207–211.
Taylor, R., 1975. Age and experience as determinants of managerial information processing and decision making performance. Academy of Management Journal 18, 74-81.
Williams, K., and C. O’Reilly, C., 1998. Demography and diversity in organizations: A review of 40 years of research. In: Staw, B., Cummings, L. (Eds.), Research in Organizational Behavior. JAI Press, Greenwich, pp. 77–140.
Woodman, R., Sawyer, J., and R. Griffin, 1993. Toward a theory of organizational creativity. The Academy of Management Review 18 (2), 293
van der Vegt, G., Janssen, O., 2003. Joint impact of interdependence and group diversity on innovation. Journal of Management 29 (5), 729–751.
Vroom, V., and B. Pahl, 1971. Relationship between age and risk-taking among managers. Journal of Applied Psychology 55, 399-405.
Weber, A., and C. Zulehner, 2010. Female hires and the success of start-up firms, American Economic Review 100, 358-361.
Wiersema, M. F., & Bantel, K. A. 1992. Top management team demography and corporate strategic change. Academy of Management Journal, 35: 91–121
Yermack, D., 1996, Higher market valuation of companies with a small board of directors, Journal of Financial Economics 40, 185-212
Zajac, E. J., Golden, B. R., and S.M. Shortell, 1991. New organizational forms for enhancing innovation: The case of internal corporate joint ventures. Management Science 37 (2), 170–184.
Published
2016-12-31
How to Cite
Sharma, Z. (2016). Board Composition and Innovation. Applied Finance Letters, 5(2). https://doi.org/10.24135/afl.v5i2.46
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