More risk-averse or more innovative? The effect of women board membership and aspirations on patent activity

Do women directors make firms more risk-averse or more innovative? We examine this question by predicting and showing that the effect of increasing women directors on the board on firm innovation output depends on the firm's performance relative to aspirations (PRA). Research based on the Behavioral Theory of the Firm (BTOF) has shown that the behavioral motives of firms to innovate depend on the firm's PRA, both positive and negative. However, who is interpreting the information that performance feedback provides could make a difference in PRA's effect. In contrast to traditional BTOF predictions, we theorize that, when performance is poor relative to aspirations and when the firm is close to failure, boards with more women directors will result in firms focusing more on survival, reducing innovation output. In contrast, when performance is high relative to aspirations and when the firm has increasing available slack, boards with more women will result in the firm taking advantage of the excess leeway that this provides, increasing innovation output. Using a panel dataset of patent data with 6118 observations for 524 firms from 1999 to 2016, we find strong empirical support for most of our predictions. Also, post hoc analyses show that for radical innovation (i.e., patents with citations in the top decile) the effect on risk-aversion is more prominent than the effect on innovation output.