Does Nomination Committee Matter for Innovation?

Abstract

<p class="MsoNormal" style="margin-top: 12pt; line-height: 12pt; text-align: justify;"><span lang="EN-US" style="font-family: 'times new roman', times, serif; font-size: 14pt;">This study analyzes how the presence and the composition of nomination committees could influence innovation. Specifically, we focus on the committee size, the frequency of meetings, and the presence of independent and female members. Innovation is measured by (1) the firm&rsquo;s ability to produce innovations such as new or improved products/processes and the number of patents, and (2) innovation expenditures (R&amp;D spending and the number of scientists and experts per R&amp;D teams). This study is drawn on firms listed on the SBF120 index, between 2002 and 2016. It provides the following results: First, the presence of nomination committees is negatively associated with the number of patent applications and the number of scientists and engineers in R&amp;D teams. Furthermore, most of the nomination committee&rsquo;s attributes (such as the presence of independent and women members) have no significant association with innovation proxies. We show, also, that large nomination committees are prone to increase innovation income (such as the R&amp;D expenditures and the number of scientists and experts per R&amp;D teams) as well as the number of filed patents. Turning to the committee functioning provides evidence that the frequency of meetings could reduce asymmetric information regarding innovation projects and lead to an increase of R&amp;D expenses. This article brings practical insights to board structures issues. This study contributes to the current debate on how boards should be organized, specifically; the nomination committees. It shows that boards should pay attention to the nomination committee features as they could undermine innovation projects, specifically in innovation-sensitive industries. </span></p>