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How do independent directors influence innovation productivity? A quasi-natural experiment

Author

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  • Pornsit Jiraporn
  • Sang Mook Lee
  • Kuen Jae Park
  • HakJoon Song

Abstract

Due to managerial myopia, managers may be reluctant to make long-term investment decisions that do not produce immediate results. Effective corporate governance can align managers’ short-term-oriented incentives with shareholders’ long-term interests. Because the board of directors is the paramount governance mechanism, we explore the role of board governance on managerial myopia. In particular, we investigate the effect of independent directors on corporate innovation. To minimize endogeneity, we exploit the passage of the Sarbanes–Oxley Act as an exogenous shock that raises board independence. Our difference-in-difference estimates show that board independence leads to significantly higher investments in innovation as well as higher innovation productivity. Our results are consequential as they show that board governance has a palpable effect on important corporate outcomes such as innovation productivity.

Suggested Citation

  • Pornsit Jiraporn & Sang Mook Lee & Kuen Jae Park & HakJoon Song, 2018. "How do independent directors influence innovation productivity? A quasi-natural experiment," Applied Economics Letters, Taylor & Francis Journals, vol. 25(7), pages 435-441, April.
    • Handle: RePEc:taf:apeclt:v:25:y:2018:i:7:p:435-441
    DOI: 10.1080/13504851.2017.1329927
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    Cited by:

    1. Claudiu Tiberiu Albulescu, 2024. "Total factor productivity and tax avoidance: An asymmetric micro-data analysis for European oil and gas companies," Working Papers 2024.15, International Network for Economic Research - INFER.
    2. Claudiu Tiberiu Albulescu & Camélia Turcu, 2022. "Productivity, financial performance, and corporate governance: evidence from Romanian R&D firms," Applied Economics, Taylor & Francis Journals, vol. 54(51), pages 5956-5975, November.
    3. Zeye Zhang & Liuyong Yang & Xuerong Peng & Zhongju Liao, 2023. "Overseas imprints reflected at home: returnee CEOs and corporate green innovation," Asian Business & Management, Palgrave Macmillan, vol. 22(4), pages 1328-1368, September.
    4. Claudiu Tiberiu Albulescu & Matei Tămășilă & Ilie Mihai Tăucean, 2021. "The Nonlinear Relationship Between Firm Size and Growth in the Automotive Industry," Journal of Industry, Competition and Trade, Springer, vol. 21(3), pages 445-463, September.
    5. Wongsinhirun, Nopparat & Chatjuthamard, Pattanaporn & Jiraporn, Pornsit & Lee, Sang Mook, 2024. "Customer concentration and shareholder litigation risk: Evidence from a quasi-natural experiment," Journal of Behavioral and Experimental Finance, Elsevier, vol. 41(C).
    6. Bai, Min & Pan, Maomao, 2023. "The economic independence of supervisory boards and corporate innovation: Evidence from China," Economic Modelling, Elsevier, vol. 127(C).
    7. Chindasombatcharoen, Pongsapak & Chatjuthamard, Pattanaporn & Jiraporn, Pornsit, 2023. "Corporate culture, cultural diversification, and independent directors: Evidence from earnings conference calls," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    8. Chatjuthamard, Pattanaporn & Jiraporn, Pornsit & Treepongkaruna, Sirimon, 2021. "How do independent directors view generalist vs. specialist CEOs? Evidence from an exogenous regulatory shock," International Review of Financial Analysis, Elsevier, vol. 78(C).
    9. Baili Yang & Abraham Nahm & Zengji Song, 2022. "Succession, political resources, and innovation investments of family businesses: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 321-338, March.
    10. Henry Osahon Osazevbaru, 2021. "Conservative Business Strategy as Moderator of Board Independence and Corporate Performance Nexus in Nigerian Financial Companies," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(6), pages 446-456, June.
    11. Ongsakul, Viput & Jiraporn, Pornsit, 2019. "How do independent directors view powerful executive risk-taking incentives? A quasi-natural experiment," Finance Research Letters, Elsevier, vol. 31(C).

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