Academic Directors and Corporate Innovation

Abstract

We show that academic directors significantly increase firms’ R&D investment and innovation outputs. Following an academic director’s death and relative to a non-academic director’s death, the average firm reduces R&D by 2.0% of total assets and its market value of innovations declines by 4.4%. The results are not driven by PhD CEOs or non-academic PhD directors. Consistent with an advising channel, academic directors in STEM disciplines are particularly pro-innovation. Firms with academic directors are more likely to dismiss the CEOs if they spend less in R&D, suggesting a monitoring channel at work as well. Academic directors are associated with higher firm value at firms where innovation is more important but not at other firms. Overall, our results highlight the vital advising and monitoring roles academic directors play in corporate innovation.