Corporate Culture, Innovation, and Female Board Representation: Evidence from Earnings Conference Calls

Exploiting a novel measure of corporate culture based on cutting-edge machine learning algorithms, we examine how female board representation influences a culture of innovation, and also whether female directors spur innovation culture in the presence of an active takeover market. Our results show that higher board gender diversity improves a corporate innovation culture considerably. Specifically, a rise in female board representation by one standard deviation improves an innovative culture by 4.37%. The findings corroborate the argument that female directors infuse the firm with new ideas and different perspectives, thereby enhancing an innovative culture. Furthermore, we also show that female board representation's interaction with the takeover market, which is a crucial external governance mechanism, spurs a corporate innovation culture as well. This implies that board gender diversity substantially softens the negative effect of hostile takeover threats on corporate innovation. Our study is the first to link board gender diversity to a culture of innovation and show the interaction effect with takeover threats.