Previous empirical studies on the benefits of “good” governance perform comprehensive and detailed analyses of corporate governance structures and regulations, but make no reference to the board’s intellectual capital, or knowledge, thereby substantially limiting the understanding of the role of corporate governance in organizational value creation. In the paper, Intellectual Capital, Corporate Governance, and Firm Value, which was recently made publicly available on SSRN, I address this gap.
I use the number of scientists on the board of directors as a proxy for the board’s intellectual capital and investigate the impact of directors-scientists on firm value in the population of publicly-listed U.S. firms. I expect a positive contribution of scientists to firm value in knowledge-intensive sectors, such as information technology, pharmaceuticals and chemical products, characterized by significant R&D activities, product innovation, and long-term projects. Boards with strong scientific expertise are more likely to make effective strategic R&D decisions and subsequently monitor these decisions effectively than boards with limited scientific experience. Directors with scientific background are also expected to have a longer decision horizon than other directors; the boards with strong scientific expertise are therefore more likely to select long-term projects that maximize the firm’s net present value instead of the projects that focus on current profits.