The impact of board of directors’ composition on firm performance through innovation in Finnish and Swedish corporate sector

Abstract

In the modern business world, the organizational, and technological risk exposures are normal, perpetual and deeply ingrained. In such milieu, corporations place a high value on innovation in order to survive, grow and sustain. In the modern business settings, innovation is reckoned as a synonym to corporate success. The composition and characteristics of the board of directors are one of the principal determinants that influence the nature and degree of innovation in a firm. The current study examines whether corporate innovativeness is affected by the characteristics of composition of firm directors and furthermore investigates the extent to which the innovativeness affects firm performance. Secondary quantitative data of 24 Finnish and 36 Swedish publicly traded companies have been obtained from their financial statements, annual reports and NASDAQ OMX Nordic database for the period from 2012 to 2018. The empirical findings revealed that firm performance is influenced by corporate innovativeness, which, in turn, is found to be affected by characteristics of the directors. The major contribution of the current paper is that firm-level innovativeness is not fully exogenous since the firm leadership characteristics, as represented by the board of directors of a firm, impact the innovativeness of a firm.