In a paper published in June, Paul Kalyta of the Department of Accounting at McGill University documents his study finding that a board's intellectual capital is an important source of organizational value creation. Kalyta's study used the number of scientists on a board of directors as a proxy for the board's intellectual capital, and investigates the effect of directors-scientists on firm value in the population of publicly-listed US firms. According to the paper's abstract:
Intellectual capital of the board of directors is absent from measures of "good" governance employed in the corporate governance literature. I argue that the board's intellectual capital is an important source of organizational value creation: boards with greater intellectual capital are expected to make more effective strategic and monitoring decisions in knowledge-intensive industries, characterized by substantial R&D activities and long decision horizons. Using the number of scientists on the board as a proxy for the board's intellectual capital, I investigate its impact on measures of firm value in the sample of 3,667 public U.S. firms. Consistent with the prediction, the number of directors-scientists has a positive impact on the firm's Q and stock returns in knowledge-intensive sectors. Appointing a scientist to the board raises the stock price in a three-day window around the nomination announcement by 1% and leads to abnormal returns of 2.5% over the 12-month post-event period.
Based on his research, Kalyta found that scientists on the board of directors have a positive effect on firm value in knowledge-intensive sectors. His results suggest that strong intellects on the board of directors constitute a significant asset and a driver of superior performance in knowledge-intensive industries. More generally, the findings highlight that the board's intellectual capital is an important dimension of corporate governance and a source of organizational value creation.
The full text of Kalyta's paper is available via: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1848088