Board Composition and Innovation

Abstract

Corporate boards make key economic and financial decisions. Diversity in the boardroom, on hand can lead to higher innovation by increasing interaction between heterogeneous agents; on the other hand it can lead to more conflict based on the predictions of social identity theory. In an examination of US firms from 1999 to 2006, this study finds that demographic diversity; directors’ individual characteristics and affiliation are associated with higher innovation in form of patents and quality of innovation in form of citations.