TY - JOUR
T1 - Board diversity and corporate propensity to R&D spending
AU - Asad, M.
AU - Akbar, S.
AU - Li, J.
AU - Shah, S.Z.A.
N1 - Publisher Copyright:
© 2023 The Authors
PY - 2023/10/1
Y1 - 2023/10/1
N2 - Drawing on collective contributions and group performance perspectives, this paper examines the role of board diversity in firms' R&D investment decisions. Building on a fault-line argument about a team's demographic attributes, this study also decomposes the impact of demographic and cognitive diversity on R&D spending. The study sample contains UK data of non-financial companies covering the period between 2005 and 2018. We employ panel data analysis techniques and control for potential endogeneity issues through the application of the two-step system Generalised Method of Moments (GMM) estimations. The findings demonstrate a positive and significant relationship between board diversity and level of corporate R&D spending. The findings also show cognitive diversity as significantly positively associated with corporate R&D investments. Demographic diversity, however, has an insignificant relationship with corporate spending on R&D. The results further show that demographic diversity negatively moderates the relationship between cognitive diversity and spending on R&D. Our main findings document that the board's attributes as a group significantly influence decisions of strategic importance such as, investment in R&D projects. The findings on sub-dimensions of board diversity imply that as compared to demographic diversity, functional/cognitive diversity is more relevant to strategic decisions and related outcomes. The study has practical implications for shareholders in documenting the importance of board diversity, and policy implications for regulators in highlighting the separate roles of behavioural and cognitive diversity in shaping firms' strategic investment decisions.
AB - Drawing on collective contributions and group performance perspectives, this paper examines the role of board diversity in firms' R&D investment decisions. Building on a fault-line argument about a team's demographic attributes, this study also decomposes the impact of demographic and cognitive diversity on R&D spending. The study sample contains UK data of non-financial companies covering the period between 2005 and 2018. We employ panel data analysis techniques and control for potential endogeneity issues through the application of the two-step system Generalised Method of Moments (GMM) estimations. The findings demonstrate a positive and significant relationship between board diversity and level of corporate R&D spending. The findings also show cognitive diversity as significantly positively associated with corporate R&D investments. Demographic diversity, however, has an insignificant relationship with corporate spending on R&D. The results further show that demographic diversity negatively moderates the relationship between cognitive diversity and spending on R&D. Our main findings document that the board's attributes as a group significantly influence decisions of strategic importance such as, investment in R&D projects. The findings on sub-dimensions of board diversity imply that as compared to demographic diversity, functional/cognitive diversity is more relevant to strategic decisions and related outcomes. The study has practical implications for shareholders in documenting the importance of board diversity, and policy implications for regulators in highlighting the separate roles of behavioural and cognitive diversity in shaping firms' strategic investment decisions.
KW - Board diversity
KW - Cognitive diversity
KW - Demographic diversity
KW - Research and development spending
KW - Faultline
UR - http://www.scopus.com/inward/record.url?scp=85165612109&partnerID=8YFLogxK
U2 - 10.1016/j.irfa.2023.102802
DO - 10.1016/j.irfa.2023.102802
M3 - Article
VL - 89
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
SN - 1057-5219
M1 - 102802
ER -
