The impact of board gender diversity and foreign institutional investors on firm innovation: evidence from China

Abstract

PurposeThis study investigates the impact of board gender diversity and foreign ownership on innovation in Chinese firms.Design/methodology/approachThe authors use data for Chinese manufacturing firms listed on the Shanghai and Shenzhen stock exchanges, for a sample over the period 2008–2017. Ordinary least square (OLS) is used as the baseline methodology, with cluster OLS, two-stage Heckman test, Blau index and Shannon index used to address endogeneity issues.FindingsThe results show that gender diversity on the board has a positive effect on corporate innovation as measured by the total number of patent applications, invention patent applications, utility model patent applications and design patent applications. Our findings also provide support for the critical mass participation of female directors on the board being associated with more innovation. They also reveal that innovation output does not vary across state-owned enterprises (SOEs) and non-SOEs. These outcomes reveal that SOEs' advantages, such as easy access to funding and more support of government, are likely offset by their disadvantages, such as different goals and having more agency issues. Because of intense political power and networks in Chinese firms, qualified foreign institutional investors (QFIIs) are less motivated to enhance innovation activities.Practical implicationsThis study highlights the role of board gender diversity in enhancing innovation among Chinese manufacturing firms. Our findings provide support for regulatory bodies' role regarding women's participation on the board.Originality/valueThis research adds to literature by addressing the largely ignored questions of whether providing a gender-diverse board enhances innovation, whether critical mass participation has a greater effect on improving firm innovation and whether the influence of women directors varies with ownership structure.

She-E-Os and innovation: do female CEOs influence firm innovation?

“…Furthermore, the control variable coefficients are compatible with previous research. Board size (B_SIZE) is significantly negative when using PATENTS t and PATENTS2 t as dependent variables, suggesting that smaller boards are more likely to enhance innovation (Ain et al, 2021a;Fu, 2019;Yermack, 1996). Board independence (B_INDP) shows a significant positive relationship, in line with Fu (2019).…”

“…To measure corporate innovation, our study uses patentrelated metrics (Ain et al, 2021a;Bernstein, 2015;Boasson and Boasson, 2015;Bradley et al, 2017;Chang et al, 2015;Fu, 2019;Tian and Wang, 2014). In China, patents may be divided into three categories according to Chinese patent law: invention patent applications; utility model patent applications; and design patent applications.…”

The effects of diversity on creativity: A literature review and synthesis

“…Research has also started to consider the creativity consequences of attributes pertaining to demographic diversity at the organizational level. The gender diversities of R&D workforces (Diaz-Garcia et al, 2013), of TMTs (Huang, 2021), and of boards (Ain et al, 2021), just as the age diversity of TMTs (Yoon et al, 2016), were all shown to stimulate organizational creativity. More specifically, the positive effect of a TMT's gender diversity on firm innovation was found for a female-to-male ratio of .25 to .30 but became insignificant and even turned negative for a ratio below .25 (Huang, 2021).…”

Board gender diversity and sustainable growth rate: Chinese evidence

“…They concluded that, due to women directors' participation on the board, internal governance practices were improved. The outcomes of the above studies show that women directors reduce agency costs (Ain et al, 2020) and the number of environmental lawsuits (Liu, 2018), promote sustainable investment (Atif et al, 2020), enhance corporate innovation (Ain et al, 2021a), are more accountable and careful (Fondas, 2000;Schmitt et al, 2008), mitigate earning management practices (Saona et al, 2019), increase dividend payments , reduce tax avoidance (Richardson et al, 2016), and also develop internal governance systems. Although the above theoretical and empirical studies have provided mixed evidence on the costs and benefits of BGD, in the present paper and in the Chinese context, we consider that more advantages are likely to be achieved through women directors' presence on the board.…”