Corporate Culture, Innovation, and Board Size : Recent Evidence from Machine Learning and Earnings Conference Calls

Purpose: Taking advantage of a novel measure of innovative culture generated by advanced machine learning, we investigate how a culture of innovation is influenced by a crucial aspect of the board of directors, i.e., board size. Our data on corporate culture of innovation are based on a textual analysis of earnings conference calls and represent a unique approach to capturing corporate culture. Design/Methodology/Approach: In addition to the standard regression analysis, we also perform several sophisticated robustness checks, such as propensity score matching, entropy balancing, an instrumental-variable analysis, Oster’s (2019) method for testing coefficient stability, GMM dynamic panel data analysis, and Lewbel’s (2012) heteroscedastic identification.Findings: Corroborating the prediction of the resource dependence theory, our results show that larger boards promote an innovative culture more effectively. A larger board with more directors provides the firm with additional resources, expertise, and abilities, enabling it to develop an innovative culture more successfully.Originality: Our study is the first to examine the effect of board size on innovation using data on corporate culture generated by sophisticated computer algorithms. We advance the literature both in corporate governance and corporate innovation