Board diversity, financial flexibility and corporate innovation: evidence from China
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Board diversity, financial flexibility and corporate innovation: evidence from China Haroon ur Rashid Khan1 · Waqas Bin Khidmat2 · Sadia Awan3 Received: 16 September 2019 / Revised: 31 August 2020 / Accepted: 3 September 2020 © Eurasia Business and Economics Society 2020
Abstract In this study, we use a sample of Chinese companies to examine the effect of board diversity on the corporate innovation measured through propensity to patents and patents conversion rate. Our findings show that corporate innovation is significantly positively associated with the female director’s share, as well as the young director’s share on the corporate boards, while we find an insignificant effect of foreign national director share on corporate innovation. Additionally, the association between board diversity and innovation is tested under different financial flexibility choices based on cash and leverage combinations. Interestingly, the positive effect of board diversity on corporate innovation is enhanced with financial flexible firm. This study has importance for the corporate board and policymakers. An increase in diversity in terms of female representation and young directors bring creativity, voice, and strive in the boardroom. The regulators are suggested to enact rules/ guidelines to have a mandatory presence of females on board to enhance competition and increase transparency. Keywords Board diversity · Innovation · Financial flexibility · Upper echelons theory · Emerging economy
* Waqas Bin Khidmat [email protected] Haroon ur Rashid Khan [email protected] Sadia Awan [email protected] 1
School of Management and Engineering, Nanjing University of Information Science and Technology, Nanjing, Jiangsu Province, People’s Republic of China
2
Department of Business Administration, Air University Islamabad, Kamra Campus, Attock, Pakistan
3
Employees Housing Scheme (EHS), Hazara Road, Wah City, Islamabad, Pakistan
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Vol.:(0123456789)
Eurasian Business Review
1 Introduction "Do not save what is left over after spending, but spend what is left after saving" – Warren Buffet Managers around the world have a consensus that firms benefit from the workforce diversity (Carter et al. 2003; Erhardt et al. 2003; Liu et al. 2014; Nguyenet al. 2015). Diversity leads to outside the box thinking which builds an environment for innovativeness (Bernile et al. 2018; Chen et al. 2015; Miller and Del Carmen Triana 2009; Østergaard et al. 2011; Talke et al. 2010). Our study is based on the upper echelons theory that states that management experiences, values, and personalities significantly influence their interpretations of situations they face and, in turn, affect their choices (Hambrick and Mason 1984). Demographic characteristics of the board bring competitiveness (Hitt et al. 1996), creativity (Goodstein et al. 1994; Miller and Del Carmen Triana 2009; Talke et al. 2010), monitoring (Adams and Ferreira 2009; Aghion et al. 2013) and better financial decisions (Bernile et al. 2018). Most of the studies explored t
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