Business sustainability under the influence of female directors toward the risk-taking in innovation: Evidence from textual analysis

Innovation is one of the crucial drivers that stimulates firms toward Sustainable Development Goals (SDGs), but successful innovation comes with high uncertainty since innovation involves large capital expenditures and complex processes. The characteristics of the board of directors (BOD) influence their perceptions, preferences, and interpretation which affect their decision-making and firm outcomes. This study emphasizes the relationship between female directors and corporate innovation. We use text-based measures of innovation (TBI) to capture innovation investment. The fixed-effects regression results suggest that female directors reduce the innovation investment level of the firm. The empirical results are tested for robustness using a two-stage least square instrumental variables (2SLS-IV) analysis and a two-step system generalized method of moment (GMM) panel estimator. The latter supports the initial results and aligns with the Upper Echelons Theory (UET), where the characteristics of the BOD determine the organizational outcomes. The findings conclude that female directors influence the decision outcomes of the BOD toward risk-neutral, which lowers innovation investments while maintaining the firm profitability.