Do board interlocks increase innovation? Evidence from a corporate governance reform in India |
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| Institution: | 1. Santa Clara University, 500 El Camino Real, 95053 Santa Clara, CA, USA;2. CREST (ENSAE), 3, Avenue Pierre Larousse, 92245, Malakoff Cedex, France;3. University of Cambridge, Trumpington Street, Cambridge CB2 1AG, United Kingdom;1. Santa Clara University, 500 El Camino Real, 95053 Santa Clara, CA, USA;2. CREST (ENSAE), 3, Avenue Pierre Larousse, 92245, Malakoff Cedex, France;3. University of Cambridge, Trumpington Street, Cambridge CB2 1AG, United Kingdom;1. CORPNET, University of Amsterdam, Amsterdam, The Netherlands;2. LIACS, Leiden University, Leiden, The Netherlands;1. Xi''an Jiaotong University China;2. Indian Institute of Management Calcutta, India;3. Stevens Institute of Technology, United States;1. School of Economics and Management, Tongji University, Shanghai 200092, China;2. Department of Management, College of Business Administration, University of Texas-Pan American, 1201W University Dr, Edinburg, TX 78541, USA;3. Labovitz School of Business & Economics, University of Minnesota Duluth, 412 Library Drive, Duluth, MN, 55812, USA;1. Department of Futures Studies, University of Kerala, Kariavattom, Kerala 695 581, India;2. Computer Centre, University of Kerala, Palayam, Kerala 695 581, India;3. Department of Chemical Engineering, M. S. Ramaiah Institute of Technology, MSR Nagar, Bangalore, 560 054, India |
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| Abstract: | We examine the effect of board interlocks on patenting and R&D spending for publicly traded companies in India. We exploit a corporate governance reform to address the endogeneity of board interlocks through exogenous changes mandated by the reform requiring a subset of firms to adjust their board structure. We rely on two difference-in-differences frameworks, comparing firms affected by the reform to unaffected firms as well as comparing within the set of firms that did not have to adjust their board structure those that still experienced an exogenous increase of their network size as a result of the reform to those that did not experience a change in their network size. We find that board interlocks have significant positive effects on both R&D and patenting. The evidence suggests that the impact on R&D is induced by information transmission through interlocks. The effect on patenting is driven by firms extending patent protection by patenting inventions abroad that they have already patented in India. |
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