The purpose of this paper is to investigate the effect of board human capital diversity on corporate innovation. Moreover, it examines the moderating effect of internal social capital on the relationship between board human capital diversity and corporate innovation.
The hypotheses are tested using a data set on Standard & Poor’s 1500 firms from 2000 to 2015. To overcome omit variable bias and reverse causality, this paper uses change-on-change regression by exploring the exogenous shock of the death of the directors.
Findings show that board industry diversity has a curvilinear relationship with corporate innovation. In addition, the board co-tenure experience, a key factor of internal social capital, can mitigate the risk of board industry diversity and improve corporate innovation.
Prior studies mostly considered the demographic dimension of diversity and, therefore, have overlooked how other dimensions influence firms. This paper considers the human capital dimension of board diversity and investigates the effect of board industry diversity on the firm’s innovation outcome. In addition, this paper also addresses the question of whether the interaction of different director attributes, namely, board human capital and board internal social capital, can complement each other to enhance corporate innovation.
