Industry‐Specific CEO Experience on Boards and Environmental Innovation

ABSTRACT Research Question/Issue This study aims to examine the impact of independent directors' industry‐specific CEO experience on environmental innovation and subsequent firm performance and value in US firms. Research Findings/Insights Drawing key insights from the management, corporate governance, and innovation literature, this study provides new empirical evidence that independent directors with CEO experience in industries similar to the appointing firm tend to promote value‐enhancing environmental innovation strategies. Our findings reveal that while the presence of industry‐specific CEO directors on the board may reduce environmental innovation, this reduction aligns with industry norms and contributes to improved firm performance and value. Furthermore, this effect is more pronounced in states with weak environmental regulation, where environmental initiatives are discretionary rather than mandatory. Finally, we ruled out alternative explanations for our results, which remained robust across various specifications and tests. Theoretical/Academic Implications We provide robust evidence that independent directors' industry‐specific CEO experience affects environmental innovation at the firm level, thus adding and further expanding the literature on the corporate outcomes of the board of directors' human capital. Second, we provide evidence on the impact of environmental innovation initiated by firms with industry‐aligned CEO expertise on their boards on firm value and performance. Third, our study answers the current call for research on any neglected individual‐level factors that could possibly shape a firm's focus towards environmental innovation. Fourth, our sample period is long enough to capture potential changes in external conditions that may have influenced firm behavior and outcomes. Thus, we go beyond prior studies and control for several factors likely to affect a firm's environmental innovation. Practitioner/Policy Implications We demonstrate that independent directors with industry‐specific CEO experience contribute to firm profitability and value by guiding firms towards industry‐consistent, higher value‐added, and performance‐enhancing green innovation levels. These results have important implications for corporate decision‐making in firm environmental innovation and beyond.