Board Interlocks, Knowledge Spillovers, and Corporate Innovation

Abstract

We examine whether interlocking boards of directors help to foster knowledge spillovers between firms. To capture exogenous variation in board interlocks, we use a novel identification strategy based on schedule conflicts between firms’ annual shareholder meeting dates. For a variety of patent-based measures, we find that innovation by a “source” firm has a greater effect on the quantity, quality, and relatedness of a “downstream” firm’s innovation when the firms share an interlock. We also document that spillovers are larger when an interlocking director is younger or non-busy. However, consistent with theories of board functioning, spillovers are reduced when either the source or downstream board has a higher proportion of outsiders or is less co-opted by the CEO. Our findings suggest that board interlocks provide an important channel by which scientific knowledge and innovation can flow between firms.

Keywords: knowledge spillovers, innovation, board interlocks, directors, monitoring, advising, patents

JEL Classification: G30, G34, O32