TY - JOUR
T1 - Estimating the effect of board independence on innovation efficiency using research quotient
T2 - a quasi-natural experiment
AU - Chatjuthamard, Pattanaporn
AU - Treepongkaruna, Sirimon
AU - Jiraporn, Pornsit
AU - Park, Keun Jae
N1 - Publisher Copyright:
© 2023, Emerald Publishing Limited.
PY - 2023/11/3
Y1 - 2023/11/3
N2 - 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.
AB - 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.
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U2 - 10.1108/CG-12-2022-0487
DO - 10.1108/CG-12-2022-0487
M3 - Article
AN - SCOPUS:85163016299
SN - 1472-0701
VL - 23
SP - 1670
EP - 1689
JO - Corporate Governance (Bingley)
JF - Corporate Governance (Bingley)
IS - 7
ER -