Management Review

Management Review ›› 2021, Vol. 33 ›› Issue (8): 90-103.

• Technology and Innovation Management • Previous Articles     Next Articles

Does Failure Tolerance of the Board of Directors Affect Corporate Innovation?

Chen Xiude1,2, Li Huiyang1, Ma Wencong1,2, Wu Xiaoman3   

  1. 1. School of Management, Guangdong University of Technology, Guangzhou 510520;
    2. Innovation Theory and Innovation Management Research Center, Guangdong University of Technology, Guangzhou 510520;
    3. School of Business & Law, Foshan University, Foshan 528000
  • Received:2018-04-16 Online:2021-08-28 Published:2021-09-04

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Abstract: Based on the new theoretical perspective of failure tolerance, the executive compensation stickiness is considered as a hallmark of the board's ability to tolerate failures of executive team management decisions. In this paper, the compensation stickiness of CEO and the top three executives with the highest salary are used to measure the degree of failure tolerance of the board of directors in both individual and team directions. And then, the Panel Data Analysis Model, Propensity Matching Score Model (PSM) and interflex analysis method are comprehensively used to examine the impact of failure tolerance on corporate's R&D investment, as well as the heterogeneity of the above-mentioned impact effects under different property rights, technology types, and marketization levels within data collated from Shanghai and Shenzhen A-share listed companies in China during 2008 to 2016. The results show that:(1) The failure tolerance of the board of directors has a significant positive impact on the innovation investment of the company, namely, when the board of directors is more tolerant of failure, the senior executives of the company tend to carry out more researches and innovation investments. (2) Compared with state-owned enterprises and high-tech enterprises, the failure tolerance of the board of directors has a stronger positive effect on the R&D investment of non-state-owned enterprises and non-high-tech enterprises. (3) The lower the degree of marketization in the province where the company is located, the stronger the incentive effect of innovation in failure tolerance of board of directors. The findings of this research not only add a new empirical evidence form China's capital market for the failure tolerance theory proposed by Manso (2011), but also have important theoretical implications for building and perfecting the fault-tolerant mechanism of senior executives in consideration of innovation incentives for Chinese enterprises in transitional period.

Key words: failure tolerance, corporate innovation, property rights, technology types, marketization degree