Board digital expertise and digital innovation: Evidence from commercial banks in China

We investigate the effect of board digital expertise (i.e., the presence of board directors with digital expertise) on digital innovation. Using a novel index of digital innovation and a sample of 2,227 bank-year observations for 296 Chinese commercial banks over the period 2008–2018, we find that board digital expertise is positively associated with digital innovation. Our results remain robust when addressing endogeneity concerns, using alternative measures for focal variables, conducting subsample analyses, and adopting alternative estimation techniques. We further find that the positive impact of board digital expertise on digital innovation is more pronounced in banks with greater needs for resource provision. When decomposing board digital expertise, we observe higher levels of digital innovation in banks with digital-savvy directors, who are more effective at channeling resources from external environments. Moreover, we find that digital innovation improves in terms of quantity, quality, scope, openness, iteration, and
human agency when more digital experts serve on the board. Finally, we demonstrate that digital innovation is a mechanism that links board digital expertise with better bank performance.