Excess is just as bad as deficiency: Parent director appointments and subsidiary innovation input

Abstract

Corporate parents are important to subsidiary development. Drawing on the parent–subsidiary relationship perspective, this paper examines the impact of parent director appointments on subsidiary innovation input. Although existing research indicates that disproportional board representation can enhance control, the literature is silent on the effects of proportional board representation. Using a sample of listed nonfinancial Chinese subsidiaries between 2007 and 2021, we find that parent director appointments in line with shareholdings significantly enhance subsidiary innovation input. The positive effect is more pronounced when the parent appoints an executive manager, and the subsidiary operates in regions with a favorable institutional environment. Based on the analysis of innovation willingness and resource, the mechanism test reveals that parent moderate appointment of directors can improve innovation input by alleviating financial constraints and fostering a greater appetite for risk.