Governing Innovation : Director Job Security and Innovation Project Choices

This paper examines the influence of directors' job security on firms' innovation project choices.Using the staggered enactment of majority voting legislation as an exogenous threat to directors'job security, we find that after legislative changes, the affected firms produce fewer patents,particularly exploratory patents, and fewer forward citations. This effect is stronger for directorsfacing higher dismissal costs or threats and for firms with more transient investors or greaterneeds for board expertise. Moreover, firms reduce innovation more in fields unfamiliar todirectors. Our results suggest that directors have incentives to avoid risky innovation whenfacing greater job insecurity