Industry Expert Independent Directors and Corporate Innovation

ABSTRACT Innovation represents the source of a company's core competitiveness. Using the data on China's A‐share listed companies from 2010 to 2022, this study examines whether and how industry expert independent directors influence corporate innovation. Based on the dual‐function view of independent directors, we find that industry expert independent directors promote both the quantity and quality of innovation while mitigating the patent bubble problem by reducing agency costs and optimizing the allocation of innovation resources, thereby fulfilling their dual role in monitoring and resource provision. The positive impact of industry expert independent directors on innovation is particularly pronounced in non‐state‐owned enterprises and those located in eastern China. This effect is further amplified when these directors possess an educational background, political connections, academician status, a high activity level, and higher reputational capital. Additionally, while promoting both the quantitative and qualitative growth of innovation, industry expert independent directors can effectively promote the transformation of innovation into real productivity and improve the total factor productivity of firms. This paper provides decision‐making references for firms in formulating innovation strategies and selecting independent directors.