Ownership structure and innovative behavior : Testing the mediatory role of board composition

Purpose – The purpose of this paper is to expand understanding of the determinants of adoption innovation in SME context by empirically examining the effect of corporate governance structure on manager's innovative behavior. This was done through exploring whether ownership structure affects managers’ innovative behavior and if so, whether the effect is mediated by board composition. Design/methodology/approach – Using a sample of 197 managers within Tunisian SMEs, hypotheses were tested through structural equation modeling and especially using covariance structure analysis (or LISREL method) with Analysis of Moment Structures (AMOS) 18.0 software and maximum likelihood estimation method. Findings – The paper found that ownership structure is significantly associated with manager's innovative behavior. Further analysis arising from introducing outsiders’ representation on the board as a mediating variable reveals that the relationship is fully mediated by this variable. Practical implications – This study gives insights to policy makers who are interested in improving board efficacy in emerging economies such as Tunisia. Indeed, the study results should encourage nominating committees and seniors to reflect warily on an effective structuring of board composition by ensuring a certain priority for innovation activities in the firm. Originality/value – This paper extends the understanding of how ownership structure shapes strategic decisions such as innovation in emerging markets. In addition, it fills the literature void by introducing the board composition as a mediating concept between ownership structure and innovative behavior, which was neglected by previous researchers.