Title: Outside directors on the board, competition and innovation

Authors: Achim Buchwald; Susanne Thorwarth

Addresses: Federal University of Applied Administrative Sciences, Central Branch, Willy-Brandt-Str. 1, 50321, Brühl, Germany; Düsseldorf Institute for Competition Economics, Düsseldorf, Germany ' Düsseldorf Institute for Competition Economics, Düsseldorf, Germany; DICE Consult GmbH, Merowinger Platz 1, 40225 Düsseldorf, Germany; Centre for European Economic Research (ZEW), Germany; Department of Managerial Economics, Strategy and Innovation, KU Leuven, Belgium

Abstract: We investigate the influence of non-executive outside directors on firms' innovative performance for a sample of 1,393 listed firms in the EU-15 member states plus Norway and Switzerland in the period 2005 to 2010. Our results show that the fraction of non-executive outside directors on the board is associated with a significant decrease in the number of patent applications if competition in the market is low. This may indicate that restrictive monitoring and lower advising competences of outside directors mitigate executives' incentives to innovate. In industries with effective competition, the negative influence of outsiders is offset by the pressure to focus on innovation strategies. Finally, the results are significant for continental European firms but not for the subsample of UK firms pointing to differences in the impact of specific governance systems with respect to innovation.

Keywords: competition; corporate governance; innovation; patents; board composition; outside directors.

DOI: 10.1504/IJEBR.2018.094014

International Journal of Economics and Business Research, 2018 Vol.16 No.2, pp.210 - 231

Received: 07 Jan 2017
Accepted: 02 Jun 2017
Published online: 13 Aug 2018 *

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