Board diversity and R&D investment
journal contributionposted on 12.04.2016 by Jeanelle Midavaine, Wilfred Dolfsma, Rick (H.L.) Aalbers
Any type of content formally published in an academic journal, usually following a peer-review process.
Purpose – The purpose of this paper is to investigate the effect of board diversity on the extent to which firms invest in R&D. Design/methodology/approach – empirical analysis of 175 firm-year observations for Fortune 500 firms in high tech industries and the four different indications of diversity of their boards. Findings – Boards that can tap into a diversity of sources for information can be expected to make better decisions. Diversity in a team and a board can, however, also impede team performance. Measuring the diversity of boards in four different ways, two of which are person-related (age and gender) and two information-based (education and tenure), we analyze which kind of diversity ensures that the firm governed by a board will invest more R&D. We find, unexpectedly, that tenure diversity leads to firms being less innovative, while education diversity and gender diversity make firms more innovative. Gender diversity positively moderates education diversity as well, strengthening the effect found. We discuss the implications of our findings for management and society. Originality/value – This study conceptually differentiates between 2 information-based and 2 person-related indications of board (team) diversity, theoretically elaborate on the effects they have, and provide empirical evidence for their effects.
- Loughborough University London