Business scholars on boards and firm innovation

Title: Business scholars on boards and firm innovation

Abstract: Firms appoint scholars such as university professors as independent directors on their boards to strengthen their innovation capabilities. Research has largely focused on STEM scholars as they provide important frontier knowledge, for example in biotech firms. However, scholars from business schools make up a large share among independent academic directors. In this paper, we employ an abductive research design to examine the impact of independent academic directors on firm innovation, using data from Chinese publicly listed firms (2008–2018). We find an unexpected result: Scholars from business schools on boards positively influence firm innovation while STEM scholars do not. This result holds with an instrument variable approach and a dynamic difference-in-differences estimation exploring forced resignations. Through interviews and analysis of academic publications, we identify “strategy knowledge” as the key mechanism: expertise in firm behavior, organizational decision making and market dynamics. Further, we identify two contextual enablers: Scholars from business schools are most effective when embedded alongside internal technology-focused directors and when they are with high social validation. These conditions enhance the board’s absorptive capacity, enabling strategic insights to shape innovation. Our study contributes to corporate governance and innovation literature by highlighting the role of business scholars, introducing strategy knowledge as a valuable resource, and underscoring the contextual dynamics that shape its influence on firm innovation.