Independent directors’ information acquisition and corporate innovation: Evidence from corporate site visits

Abstract

This study investigates how independent directors’ information acquisition affects corporate innovation. Exploiting a unique dataset from the Chinese market, we document that firms patent more and have more high-quality technical patents after independent directors conduct corporate site visits. The positive relation is more pronounced for firms with stronger external governance, higher information acquisition cost, greater advisory needs, and more independent directors having innovation backgrounds. The results are robust when we address the endogeneity concerns, use alternative measures of patent output, and examine citations. Our findings suggest that independent directors’ advisory function is more effective when they have better access to firm-specific information, and provide new evidence on the relation between information asymmetry and the effectiveness of independent directors in corporate governance.