The impact of board gender diversity and foreign institutional investors on firm innovation: evidence from China

Abstract

This study investigates the impact of board gender diversity and foreign ownership on innovation in Chinese firms. The authors use data for Chinese manufacturing firms listed on the Shanghai and Shenzhen stock exchanges, for a sample over the period 2008–2017. Ordinary least square (OLS) is used as the baseline methodology, with cluster OLS, two-stage Heckman test, Blau index and Shannon index used to address endogeneity issues. The results show that gender diversity on the board has a positive effect on corporate innovation as measured by the total number of patent applications, invention patent applications, utility model patent applications and design patent applications. Our findings also provide support for the critical mass participation of female directors on the board being associated with more innovation. They also reveal that innovation output does not vary across state-owned enterprises (SOEs) and non-SOEs. These outcomes reveal that SOEs' advantages, such as easy access to funding and more support of government, are likely offset by their disadvantages, such as different goals and having more agency issues. Because of intense political power and networks in Chinese firms, qualified foreign institutional investors (QFIIs) are less motivated to enhance innovation activities. This study highlights the role of board gender diversity in enhancing innovation among Chinese manufacturing firms. Our findings provide support for regulatory bodies' role regarding women's participation on the board. This research adds to literature by addressing the largely ignored questions of whether providing a gender-diverse board enhances innovation, whether critical mass participation has a greater effect on improving firm innovation and whether the influence of women directors varies with ownership structure.