ABSTRACT
In this article we analyse how board characteristics influence firm innovation. Firm innovation refers to basic innovation and entrepreneurial activities internal to a firm, such as the firm emphasis on new product development, innovation technology, and R&D investments. Drawing on agency theory, we developed hypotheses on specific board structural characteristics – i.e. board size, outsider ratio, directors’ shareholdings, and CEO duality – and firm innovation. We tested our model on a sample of 301 large manufacturing Italian companies. We find support for our argument that – contrary to predictions of agency theory on CEO ownership – directors’ shareholdings negatively influence firm propensity to innovate. Our results also suggest that board size may play a role in shaping firm propensity toward innovation.
