Is Cultural Proximity Good for Corporate Innovation? Evidence from Board Cultural Proximity

Abstract

Cultural proximity is a kind of similarity of values at a deep level. The cultural proximity within the board of directors mainly examines the proximity between the culture of foreign directors’ country and the Chinese culture. If the Chinese board of directors introduces directors who are proximate to the Chinese culture, the board cultural proximity will be presented in the hierarchical order and authoritarianism of culture, that is, the board culture is proximity. Based on the sample data of China’s A-share listed companies from 2007 to 2017, this paper adopts the power distance cultural similarity of the deep values to measure the similarity variables of the board culture, so as to explore the relationship between the cultural proximity of the board of directors and enterprise innovation. The results show that the closer the board culture, the lower the level of corporate innovation; similar board cultures can restrain the level of corporate innovation by reducing the level of trust and increasing information asymmetry. Specifically, according to the theory of group fault zone, directors of different nationality backgrounds pursue their own recognized authority, which is likely to form fault zones, causing internal conflicts within groups, reducing corporate trust, and making it difficult to generate and effectively promote innovative thinking and innovative activities, thereby inhibiting enterprises’ innovation level. According to the information asymmetry theory, the closer the board culture is, the less information sharing within the board will be, and the more information asymmetry will occur, which is not conducive to the stimulation of innovative ideas, the scientific nature of innovative decisions and the transmission of innovative information, and will affect the effective development of enterprise innovation activities and inhibit the improvement of enterprise innovation output. Further examination finds that the chairmanship of a foreign director helps to weaken the negative impact of similar board culture on corporate innovation. Compared with the listed companies located in the eastern region, the similar board culture in the central and western regions has a greater negative impact on corporate innovation. In the case of high trust level and low degree of information asymmetry, the inhibiting effect of similar board culture on corporate innovation is weakened. After considering endogeneity and robustness test, the above conclusions are still valid. The conclusion of this paper not only enriches the topic research of “culture and innovation”, but also expands the research scope in the field of cultural affinity. Meanwhile, it also provides empirical support for how to build an appropriate board culture in China, and provides decision-making reference for enterprises to make policies on the introduction of foreign directors and arrange reasonable positions.