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

Pornsit Jiraporn, Sang Mook Lee, Kuen Jae Park, Hak Joon Song

Research output: Contribution to journalArticle

6 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)435-441
Number of pages7
JournalApplied Economics Letters
Volume25
Issue number7
DOIs
StatePublished - Apr 16 2018

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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