Professors on boards and corporate innovation in China

Abstract

ABSTRACT Using a dataset of listed companies in China, this article finds strong evidence suggesting that academic independent directors on boards have statistically significant and economically substantial promotion effects on corporate innovation. On average, professor directors increase invention-type patent applications and grants by 11% and 7%, respectively. We use Heckman two-stage estimation to address selection bias, and we design two quasi-natural experiments taking advantage of China’s regulatory requirement of six-year tenure expiration for all independent directors and exploiting sudden departures of professor directors due to their personal reasons, respectively, to abate endogeneity. Our results endure these econometric treatments and a series of robustness checks. Furthermore, we document evidence that the advice, conduit, and connectivity channels all work in forming the professor director’s promotion effects on corporate innovation. Moreover, we find that other two types of independent directors, politicians and business people, have hardly any effect on the promotion of corporate innovation.