Does hierarchical ranking matter to corporate innovation efficiency? An empirical study based on a corporate culture of seniority

Abstract

Purpose This study aims to investigate whether and how corporate seniority culture (a form of high power distance or hierarchy), a typical feature of Confucian norms, affects the corporate innovation efficiency in emerging markets. Design/methodology/approach This study defines and measures seniority culture through the ranking method of independent directors in company’s annual report. Unlike most companies in the USA where directors are listed alphabetically, the ranking of directors in China is meaningful and reflects hierarchy. This study considers a firm with seniority if independent directors are ranked according to their status, including age, social position and political connection. Using data from Chinese listed companies between 2009 and 2013, this study conducts multiple regressions to examine the impact of seniority on innovative efficiency. Findings The empirical results show that seniority culture is negatively associated with innovative efficiency. Moreover, the negative association between a corporate culture of seniority and innovative efficiency is more pronounced in firms with more male executives and knowledge-intensive firms. Further analysis reveals that seniority culture expands pay disparities among different classes, hinders their enthusiasm to communicate and ultimately damages the corporate efficiency of innovation. Practical implications Corporate seniority culture is an essential factor that may hinder employee communication and inhibit innovation efficiency. Therefore, companies should break the identity barrier at different levels and advocate a culture of equality to promote information exchange and knowledge sharing among employees. Originality/value This study extends the field of literature on the determinants of corporate innovation efficiency and deepens our theoretical understanding of the negative impact of corporate seniority culture.