Estimating the effect of board independence on innovation efficiency using research quotient: a quasi-natural experiment

Pattanaporn Chatjuthamard, Sirimon Treepongkaruna, Pornsit Jiraporn, Keun Jae Park

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Purpose: Exploiting a novel measure of innovation, the authors investigate whether independent directors improve innovation efficiency. This novel measure of innovation captures the extent to which the firm generates revenue from its research & development and is, therefore, more economically meaningful. The authors also use a text-based measure of innovation. Design/methodology/approach: The authors rely on a quasi-natural experiment based on the passage of the Sarbanes-Oxley Act of 2002 that compelled certain firms to raise board independence. The difference-in-difference analysis is far less vulnerable to endogeneity and is more likely to show a causal influence, rather than a mere association. Findings: The results show that more independent directors improve innovation efficiency significantly. Specifically, firms forced to raise board independence experienced a much higher increase in innovation than those not required to change their board composition. The authors also explore another novel measure of innovation, a text-based metric of innovation. Originality/value: The research is original in several ways. First, the authors take advantage of an exogenous regulatory shock as a quasi-natural experiment. This approach is far less susceptible to endogeneity. Second, the authors use a novel measure of innovation efficiency, i.e. research quotient, which is more economically meaningful. Finally, the authors use a unique measure of innovation derived from powerful textual analysis.

Original languageEnglish (US)
Pages (from-to)1670-1689
Number of pages20
JournalCorporate Governance (Bingley)
Volume23
Issue number7
DOIs
StatePublished - Nov 3 2023

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting (miscellaneous)

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