Does board member stock ownership influence the effect of board composition on innovation?

Abstract

This study analyses the influence of board composition on companies’ innovation in the Spanish corporate governance system. Drawing from a multi-theoretical perspective, the analysis shows the moderating effect of board member stock ownership on the relationship between board composition and innovation. Using secondary data from a sample of Spanish-quoted companies in technology industries over the 2003–2005 period, the findings demonstrate that board composition influences the innovative behaviour of firms, and that this influence is also conditioned by directors’ stock ownership because directors’ attitude towards innovation could vary depending on their power and on how many shares they own. These results confirm that innovation increases in firms whose boards have a high proportion of affiliated directors with significant stock ownership. This study also makes some important contributions towards creating a more effective board that can shape companies’ strategic orientation, highlighting the need to consider the joint impact of board composition and ownership concentration.