Board cultural diversity, government intervention and corporate innovation effectiveness: Evidence from China

Abstract

This study explores whether the impact of board cultural diversity on corporate innovativeness is contingent on the firm’s exposure to local government intervention. Using Chinese firm-year observations spanning 2008–2016, we find that the positive impact of board cultural diversity on corporate innovativeness is more (less) pronounced for Chinese firms subjecting to a low (high) level of local government intervention. Further, we find that foreign directors from countries with lower power distance, and greater individualism, long-term orientation and indulgence indexes relative to China, more (less) successfully facilitate corporate innovativeness, particularly when the level of local government intervention is low (high). Our study contributes to the literature by documenting that greater intervention by the local government can undermine cognitive dynamics, and hence dissipate corporate innovativeness and value creation associated with a culturally diverse board.