Government R&D Subsidies, TMT Diversity, and Innovation

Industrial policy to support innovation has returned. Industrial policy research has emphasized policy capabilities to promote innovation by selecting the right firms. However, strategy research since long has stressed that top management teams (TMT) make a difference in firm performance, for instance, by enhancing the leverage of scarce firm resources. We argue that firms with more diverse TMTs translate government R&D subsidies into higher innovation performance as enhanced informational variety broadens the cognitive and behavioral repertoire of top managers. Using a unique dataset of publicly listed Chinese firms between 2008 and 2017 and combining a matching approach with a difference-in-difference design, we find that TMT’s international and functional diversity helps firm to create more innovation from R&D subsidies. Our results contribute to studies at the nexus between industrial policy and strategic management by underscoring the vital role of TMT diversity in facilitating impactful industrial policies.