Board Interlocks, Knowledge Spillovers, and Corporate Innovation

Abstract

We examine whether interlocking boards of directors help facilitate the transfer of scientific and technical knowledge 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 a board interlock significantly strengthens the impact of a firm’s innovation on other firms’ innovation quantity, quality, value, and relatedness. Consistent with theories of board functioning, these spillover effects are reduced when one or both boards in an interlock have a high proportion of outsiders or busy directors. Spillover effects are strengthened, however, when shared directors are younger or have more relevant innovation experience. We also find that higher-quality and more focused patents from originating firms, as well as higher relevance of such patents to interlocking firms’ past innovation, can enhance interlock-related spillovers. Overall, our findings suggest that board interlocks are an important channel through which scientific and technical knowledge can flow between firms.

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

JEL Classification: G30, G34, O32