How Deep‐Level and Surface‐Level Board Diversity, Formal and Informal Social Structures Affect Innovation

Abstract

AbstractDespite a growing interest in understanding how board diversity shapes firms’ innovation, findings about the impact of board diversity have remained mixed. In this paper, we conceptualize board diversity as two forms – deep‐level and surface‐level – and find that these two forms of board diversity have opposing effects on a firm's innovation. We also theorize how formal and informal social structures can strengthen the positive effect of deep‐level diversity yet simultaneously weaken the negative impact of surface‐level diversity. We test our hypotheses with a panel of 42,432 firm‐year observations from 2000 to 2019. Our paper contributes to the literature on boards and innovation by highlighting and differentiating the mechanisms through which board diversity affects innovation, as well as showing how formal and informal structures can moderate the effects of board diversity.