Which kind of board benefits more from the relationship between entrepreneurial orientation and radical innovation? The asymmetric roles of board characteristics in China

The study examines whether and how firms’ entrepreneurial orientation (EO)—a strategic posture encompassing innovativeness, proactiveness, and risk-taking—translates into radical innovation. While radical innovation is vital for competitive advantage, it is risky and failure-prone, prompting the need to understand conditions that enable EO to yield radical outcomes. The paper poses the core research question: Does EO positively affect radical innovation, and which board characteristics strengthen or weaken this relationship? Grounded in corporate governance theory, the study argues that boards shape strategic decision-making and resource access, potentially moderating the EO–radical innovation link. The purpose is to provide evidence from Chinese listed manufacturing firms and to identify asymmetric moderating roles of distinct board characteristics (CEO duality, board independence, board ownership, board size).

Prior research links EO to firm innovativeness broadly, but direct evidence on EO’s relationship with radical innovation is scarce. Literature highlights multiple drivers of radical innovation (organizational capabilities, knowledge, leadership styles, strategic orientations), with EO as a prominent antecedent. However, EO’s performance effects vary across contexts, suggesting moderating influences. Corporate governance literature emphasizes boards as central to strategic decisions and resource provision. Despite recognition of top management’s role in channeling EO, the board’s role has been understudied. This paper integrates corporate governance and EO literatures, theorizing that board characteristics exert heterogeneous, asymmetric moderating effects on the EO–radical innovation relationship: CEO duality and board independence should enhance the translation of EO into radical outcomes via clearer leadership and access to resources; conversely, higher board ownership and larger board size may impede translation due to short-termism, self-interest risks, and coordination/communication costs. Five hypotheses are developed: H1 (EO → radical innovation positive), H2 (CEO duality strengthens), H3 (board independence strengthens), H4 (board ownership weakens), H5 (board size weakens).

Data and sample: Panel of Chinese A-share listed manufacturing firms (Shanghai and Shenzhen Stock Exchanges), 2013–2019. Data sourced from CSMAR (financials, governance, EO components, controls), CNRDS and CSMAR (patents), and Wind (to fill missing values). Exclusions: ST/*ST firms, abnormal or incomplete observations. Final panel: 10,500 firm-year observations for 1,620 firms. All variables winsorized at 1% tails. Measures: - Dependent variable (Radical innovation): ln(1 + number of invention patent applications) in year t+1, capturing more original outputs and reflecting innovation outcomes from prior inputs. Invention patents preferred over utility/design patents due to higher inventiveness threshold. DV is lagged one year behind IVs/moderators. - Independent variable (Entrepreneurial orientation): Constructed following Williams and Lee (2009) from two firm-level strategic resource allocation ratios: (1) R&D intensity (R&D expenditure / sales revenue), and (2) net cash flows from investment activities / sales revenue (asset growth emphasis). The combined distance-based index reflects higher EO with larger values; this approach is adopted in prior studies. - Moderators (board characteristics): CEO duality (dummy=1 if CEO is also board chair; 0 otherwise); Board independence (independent directors / total directors, %); Board ownership (directors’ shareholding / total shares, %); Board size (number of directors). - Controls: Firm size (ln total assets), Firm age (years since establishment), Firm growth (% annual sales growth), State ownership (dummy=1 if ultimate controller is the state), Leverage (book debt / total assets), Ownership concentration (sum of top three shareholders’ ownership, %), plus industry and year fixed effects. Estimation strategy: - Multiple hierarchical panel regressions using Stata 15.0. Variables for interactions mean-centered to mitigate multicollinearity. Hausman tests favored fixed-effects over random-effects; thus, firm fixed-effects models with year and industry dummies were estimated. Sequential models tested main effect (H1) and each moderator with EO interaction terms (H2–H5), culminating in a full model with all interactions. Interaction plots were generated following Aiken et al. (1991). Robustness checks: - Alternative timing: DV lagged two years to account for longer R&D-to-patent cycles; results remained consistent. - Event window exclusion: Removed 2018–2019 observations to mitigate confounding from US–China trade/tech frictions; results were consistent.

- EO positively impacts radical innovation (supports H1). In fixed-effects regressions, EO’s coefficient is positive and statistically significant (e.g., Model 1 coefficient ≈ 0.115, p<0.05), indicating that higher EO is associated with more invention patent applications. - Asymmetric moderating effects of board characteristics: - CEO duality strengthens the EO–radical innovation link (supports H2): EO × CEO duality interaction positive and significant (β≈0.0819, p<0.05). - Board independence strengthens the EO–radical innovation link (supports H3): EO × Board independence interaction positive and significant (β≈0.0784–0.079, p<0.10). - Board ownership weakens the EO–radical innovation link (supports H4): EO × Board ownership interaction negative and significant (β≈−0.1709, p<0.10). - Board size weakens the EO–radical innovation link (supports H5): EO × Board size interaction negative and significant (β≈−0.0455, p<0.10). - Full model including all moderators yields qualitatively consistent results; firm fixed effects, year and industry effects included. Hausman tests consistently preferred fixed-effects specifications. Descriptives indicate substantial variation in radical innovation and relatively low average EO (mean EO ≈ 0.157). Robustness tests (two-year lag of DV; exclusion of 2018–2019) confirmed the main findings.

Findings confirm that firms with stronger entrepreneurial orientation achieve higher radical innovation output. EO facilitates radical innovation through three mechanisms: motivation (greater willingness to innovate and outpace rivals), opportunity (proactive scanning and first-mover pursuit), and ability (risk-taking and learning through exploratory efforts). The study further shows that boards shape the conversion of EO into radical innovation asymmetrically. CEO duality provides unified, unambiguous leadership and faster strategic implementation, enhancing the translation of EO into radical outcomes. Greater board independence contributes human and relational capital, broadening perspectives and networks that provide resources and knowledge to implement EO-driven initiatives. In contrast, higher board ownership can promote short-termism and strategic intervention aligned with directors’ self-interest, diverting resources from long-horizon radical innovation. Larger boards incur higher coordination and communication costs, slower decision-making, diffusion of responsibility, and increased risk aversion, all of which dampen EO’s effectiveness. Collectively, results underscore corporate governance—specifically board design—as a crucial boundary condition for realizing the innovative potential of EO.

The paper demonstrates a significant positive relationship between entrepreneurial orientation and radical innovation among Chinese listed manufacturing firms, and reveals asymmetric moderating roles of board characteristics: CEO duality and board independence amplify the EO effect, whereas board ownership and board size dampen it. Contributions include: (1) extending EO research by focusing specifically on radical innovation and offering motivation–opportunity–ability mechanisms; (2) establishing board characteristics as key corporate governance contingencies in the EO–innovation link; and (3) advancing a configurational perspective, suggesting that CEO-centric, smaller, more independent boards may better harness EO for radical innovation. Future research should (a) develop broader measures of radical innovation beyond patents, (b) investigate mediating mechanisms (e.g., absorptive capacity) linking EO to radical innovation, (c) examine other governance mechanisms (e.g., CEO compensation) as contingencies, and (d) test generalizability across countries and sectors.

- Measurement limitation: Radical innovation proxied by invention patent applications; non-patented radical innovations are not captured, potentially biasing results. - Unexplored mediation: The study does not test intervening mechanisms (e.g., absorptive capacity, organizational learning) through which EO drives radical innovation. - Scope of governance factors: Focuses on board characteristics; other governance mechanisms such as executive compensation or ownership types may also moderate the EO–innovation relationship. - External validity: Sample limited to Chinese listed manufacturing firms; findings may not generalize to other contexts without further testing.