Board Gender Diversity and its Impact on Firm Innovation Strategies

Abstract

We examine the effect of board gender diversity on innovation outcomes. Using upper-echelons and construal level theory, we argue that female representation on corporate boards increases the diversity of information sets, influences how information is processed, generates within-person changes in board member construal, and thereby affects the board’s decisions related to innovation strategies. Consequently, board gender diversity is not only likely to affect the quantum of innovations, but also the impact of innovations, and a greater tendency to aim for moon shots – that is high risk, high value innovations. Using 20 years of panel data and instrumental variable (IV) regressions, we find that board gender diversity is positively associated with the quantum, impact, and risk of innovations. We explore the path through which board gender diversity influences innovation outcomes. Results indicate that existence of female innovators is an important mediator of the positive relation between board gender diversity and innovation outcomes. Further, the information brought by women directors from their membership in other corporate boards significantly influences innovation. Innovation outcomes positively influence firm financial performance in subsequent periods. We conclude that board gender diversity is a crucial driver of innovation strategy.