Friendly boards and innovation

Abstract

We examine how friendly boards affect firm innovation. Using CEO-director social connections as a measure of board friendliness, we find that firms with friendly boards create more patents and citations. The positive relation between friendly boards and innovation are more pronounced when firms’ advisory needs are higher or when firms operate in innovative industries. Friendly boards are also associated with higher firm value, especially when firms have higher advisory needs or when innovation is an important source of firm value. Our results support the positive view on a friendly board perspective that directors serve as valuable advisors to CEOs.