Navigating in a Partisan Political Landscape: Evidence from Boardroom Political Ideological Dispersion and Corporate Innovation

We examine how political ideological dispersion within corporate boards influences firm innovation. Using a sample of US publicly traded firms from 2000 to 2020, we document a robust positive association between partisan divergence among directors and firm innovation outcomes. Firms with ideologically diverse boards exhibit higher patent counts, more patent citations, and greater patent value. To strengthen causal inference, we implement a difference‐in‐differences analysis around director deaths, as well as an instrumental variable approach, both confirming the positive effect of board ideological diversity on innovation. Further analyses indicate that this effect operates primarily through the board's advisory function rather than its monitoring role: the relation is stronger in firms with stronger internal and external governance, greater regulatory complexity, and higher industry innovation intensity. Moreover, we find that the positive influence of ideological diversity is amplified in periods of low political polarization, when constructive dialogue and information exchange among directors are more feasible. Overall, the findings highlight the value of ideological diversity in enhancing corporate innovation, and underscore how boards can leverage diverse political perspectives to improve strategic decision‐making, particularly in a politically divided environment.