It has long been debated in the corporate governance literature whether board interlocks can effectively contribute to organizational innovation activities. Drawing on resource dependence theory, this study aims to show a curvilinear relationship between the presence of interlocking directors on the board and the innovation initiatives firms undertake.
The analysis was conducted on a sample of 896 publicly traded Indian companies with 8,015 observations from 2014 to 2023. The results depict an inverted-U relationship between board interlocks and the firm’s decision to invest in innovation projects. The implications of the results for the corporate governance and innovation literatures are discussed.
Using a resource-dependence perspective, this study clarifies the relationship between board interlocks and innovation. This analysis suggests that up to a certain limit, the presence of interlocking directors is beneficial for a firm’s innovative growth.
The findings suggest that boards must be more careful while adding new interlocking directors to an existing board to ensure that the maximum value is extracted from the directors’ extended social capital and that a requisite variety of expertise is available on the board.
