Board diversity and corporate innovation: Regional demographics and industry context

Abstract

AbstractResearch Question/IssueWhat are the causes and consequences of board diversity on innovation across a broad array of different types of diversity (education level, gender, and age), while controlling for director expertise in science and business? How do these different types of diversity affect innovation in different industry contexts?Research Findings/InsightsWe use regional demographics in China (e.g., there are in fact differences in the proportion of females by region) to instrument board characteristics. We find that gender diversity is more pertinent in facilitating innovation in male‐dominated industries, not female‐dominated industries. In low‐tech and nonpatent intensive industries, all types of diversity facilitate innovation, whereas in high‐tech and patent intensive industries, scientific experience matters more than types of diversity. We find some evidence that age diversity results in lower‐quality patents, while boards with science expertise have higher‐quality patents.Theoretical/Academic ImplicationsWe develop unique tests to control for endogeneity of diversity in innovation by exploiting regional differences in demographics. The theory and evidence suggest that specific types of diversity matter for innovation to the greatest degree where the industry is characterized by the absence of that characteristic.Practitioner/Policy ImplicationsWe examine the broad context of diversity in organizations and examine whether there is a gap in firm's diversity insofar as we can infer that diversity explains innovative activity within organizations. By identifying which types of diversity matter for organizations, appropriate policy responses can be identified to enhance innovation.