Nonlocal Independent Boards And Innovation

Innovation is the primary engine of development and one of the most important supports for building modern economic system.Nowadays,mass entrepreneurship and innovation have already become the symbol of the times.Actually,enterprises play an important role in innovation activities all the time.Due to characteristics of high risk,huge capital investment and long cycle,principal-agent problem exists in innovation activities also have the principal-agent problem.So,it is of great importance for the role of independent board.However,there is an obvious trend in the appointment of independent directors: ratio of nonlocal independent directors has gradually become high.Function of independent director has duality,that is,geographical distance may lead to weakness of supervision,but it is also a strengthen of independence.In the context of this,taking enterprise innovation as entry point,we selected companies listed on second-board market from 2010 to 2017 as research samples to discuss the influence of the nonlocal independent directors.On the basis of reviewing and summarizing existing literatures at home and abroad,this paper tries to innovate in the following aspects: first,this paper took enterprise innovation as the entry point to discuss the influence of the nonlocal independent directors;secondly,this paper measures the innovation activities of enterprises from the triple dimension,input,output and innovation mode.Theories we used include innovation theory,principal-agent theory,asymmetric information theory and new economic geography theory.After empirically testing the effect of nonlocal independent directors on enterprise innovation,we reached conclusions as follow.Firstly,existence of nonlocal independent directors will reduce corporates' R&D spending,and the higher the ratio of them on the board,the less expenditure on R&D.Due to high risk,huge capital investment and long cycle,innovation activities may lead to large fluctuations in corporates' operating performance.Since managers' compensation are highly connected to the performance of company,they are motivated to reduce R&D expenditures for their own interests.Due to increase of geographical distance,supervision from independent directors may be weakened.Secondly,there is a significant negative correlation between the existence of nonlocal independent directors and innovation outputs.Several reasons contribute to innovation output,and expenditure on R&D is one of the necessities.The existence of nonlocal independent directors will lead to reduction on innovation investment,subsequently doing damage to patent output.Third,increase of geographical distance aggravates information asymmetry.As a result,supervision from independent directors may be weakened,which can be more detrimental to the development of independent innovation mode.