Impact of Top Management Team Diversity on Firm Innovation

Abstract

The success and failure of companies can be attributed to many causes, but innovation is often cited as one of the key factors. Innovation can be defined broadly as the successful exploitation of new ideas (Nathan & Lee, 2013). Though innovation has been found to be a strong predictor of a firm's future returns, factors contributing to successful corporate innovation are not fully understood. One area recently attributed to innovation is diversity. According to Joshi & Jackson (2003), diversity can be defined as "the distribution of personal attributes among interdependent members of a work unit." As diversity propels ideas and perspectives from different people, the creativity process is energized and thus, innovation rises. Innovation can be further influenced at the top management team (TMT) level given the ability of this group to define the direction of the firm. The purpose of this study is to assess whether diversity at the TMT level drives firm innovation. This research question is tested using a sample of S&P 500 firms over the period 2010-2017. Innovation is measured by patent filings and citations. The empirical results show diversity traits such as tenure, culture, education and political affiliation do positively influence innovation. Gender, age and job diversity were found not to be significant.