**1. Introduction**

Under the background of new scientific and technical revolution and accelerated advancement of industrial reform around the world, innovation, as the first driving force leading social and economic development, is pivotal to a country's sustainable development and rebuilding world competition pattern [1–3]. As a result, increasing research and development (R&D) investment and advancing innovation have been common strategies of the world's main economies, especially those emerging markets [4–6]. According to Science & Engineering Indicators (2018 Digest) issued by National Science Foundation of the United States, R&D investment in the USA, Japan, Germany, France, China, UK, and South Korea tended to rise generally after 2000, and the rising tendency in China was remarkable. China, within ten years, successively surpassed France (2001), Germany (2004), and Japan (2009) and developed into the world's second-largest county in R&D investment following the USA [7]. Enterprises are the main driving forces for research and development. By 2017, the proportion of enterprises' R&D investment in total investments of China reached 77.6% [8], which was significant for China to promote a development strategy driven by innovation and build an innovative county. However, in China, enterprises typically invested less in R&D activities than those in the USA. In 2017, average R&D investment of enterprises in China was less than 3%, far lower than 6% of the USA [9]. In particular, as current Sino-US trade friction aggravates, strengthening the function of enterprises in

research and development and national scientific and technical innovation will be a key strategy to tackle new challenges in the new era.

What factors will influence enterprises' innovation on research and development? Previous research has found that influential factors of research and development include external economic and political environments [10], such as macroeconomic volatility [11], interest rate marketization [12], political instability [13], judicial system [14], and the nature of business [15]. However, according to many studies since the innovation theory was proposed by Joseph Schumpeter, enterprises do not focus on external influencing factors only. Instead, internal factors are also be considered [16– 18]. Especially, the upper echelons theory proposed in 1984 brought the influence of observable and unobservable features into the view of researchers [19–21]. The former includes cognitive bases and values of senior management. The latter involves factors such as the level of education, age, and professional experience on corporate strategy. Postgraduate education is the main channel for cultivating advanced innovative talents [22]. Compared to employees with senior high school education or undergraduate education background only, staff with master's or doctoral degrees may have higher innovative awareness and stronger capacities in research and development due to their scientific research experience. When working in an enterprise or being promoted to directors, they may apply their postgraduate education to practical scenarios. This will prominently advance R&D activities of the enterprise and can be regarded as an important representation of social functions of postgraduate education.

In this view, the relationship between directors' postgraduate education experience and R&D activities of their companies has been a significant topic yet, under-researched. Our paper aims to fulfill this gap. The detailed objective of this paper is twofold. First, we aim to reveal whether a firm's R&D investment is significantly related to its directors' postgraduate education experience. Second, we aim to explore whether this relationship shows heterogeneity in different industrial environments. Based on a sample of 1374 companies in China, we examined the overall influence of directors' postgraduate education characteristics on their firm's R&D investment. We further investigated this correlation in the second industry and the third industry, respectively. Moreover, IT industry attracted particular attention during the analysis due to its massive R&D investment activities compared to other industries. This study contributes to related research both theoretically and practically

In terms of theoretical contribution, this paper enriches innovation management theory, upper echelon theory, and human capital theory. In contrast to prior innovation management research highlighting external determinants of corporate R&D innovation, our research finds that the higher the percentage of directors with a doctoral degree is, the more investment in R&D activities, providing the empirical evidence that internal factors from board of directors also matters. In line with the research from the perspective upper echelon theory, this paper pays attention to director's individual characteristics as well, especially educational characteristics. Our research findings indicate the association between a director's postgraduate education characteristics and a firm's R&D investment varies in different industry environments. In the second industry that mainly consists of industrial companies, the higher the proportion of postgraduate education degree holder as directors, the more expenditure in R&D activities. However, this correlation is not statistically significant in the third industry, which involves commercial, financial and real estate, public utilities, culture, education, sports, and IT companies. Through the lens of human capital theory, there is economic value embedded in the postgraduate education, which is justified in this paper in the respect of R&D investment. In addition to the positive impact of human capital on economic growth and R&D innovation that has been studied thoroughly, our contribution lies in unpacking the complexity in reality due to the certain attributes of both board directors and corporate developing strategies. Findings in IT companies confirm that if a capital-driven strategy is adopted, directors with master's degrees and economics and management background tend to reduce R&D investment.

In terms of practical contribution, research findings of this paper provide insights for the corporate governance at the institutional level and the sustainable innovation strategy at the national level. Enterprises should realize the correlations between directors' postgraduate education characteristics and R&D investment, then adopt targeting innovative strategies, and through board staffing and configuring. National policy should also encourage universities to increase the availability of innovation and entrepreneurship education in the curricula system of postgraduate education for the achievement of sustainable innovation of a state.

The rest of this paper is organized as follows. The second part briefly reviews the relevant literature and several corresponding hypotheses drawn from previous research. The third part introduces the research methods, which include information about data used in this study and operationalization of variables. Results of descriptive statistics of variables are also presented in this part. The fourth section documents the research findings based on the ordinary least square (OLS) regression analysis and the endogeneity problem is treated through different methods. Apart from the overall influence, regression between different industries and within the IT industry are also employed. The next section shows the related discussion and conclusions emerging from this study. Possible implications, limitations, as well as future research directions are discussed in the last section.

#### **2. Literature Review and Research Hypothesis**

A large number of empirical studies have identified that highly educated top management teams, for instance CEOs, hold more of an open attitude toward innovation [23] and thus have a tendency to invest more in R&D activities [24]. Following this line of reasoning, directors, as the core decision-makers of a firm, may also play a central role in the innovative strategies of a corporate. Therefore, their characteristics may exert a profound influence on a firm's R&D activities as well. The relationship between directors' characteristics and a firm's R&D investment has attracted attention from several scholars so far. For example, the following studies identified that directors' gender affected the firm's R&D investment. Despite the common sense that women tend to be risk-averted, researchers have found that female directors in the boardroom actually invest more in R&D activities compared with their male counterparts [25–27]. Age is another determinant. Based on the data from the IT listed firms in China from 2007 to 2010, it was found that directors' age had a negative effect on the company's R&D investment [28]. Others claimed that positions which directors used to take also shaped the strategic decisions regarding R&D investment in a company [29,30]. For example, entrepreneurial finance experience and technical experience of directors in publicly traded biotech/pharmaceutical enterprises could significantly affect R&D investment [31]. Moreover, an increasing line of literature also provides empirical evidence that directors' educational background, a predominate indicator representing human capital, is associated with a firm's R&D investment [32]. Given the fact that directors in Chinese listed firms are basically master's degree holders [33], the director's postgraduate education experience deserves more attention. However, prior literature primarily captures directors' level of education, while their disciplinary background and graduation institution characteristics are largely ignored. This paper aims to fill this gap.

Although directors' postgraduate education experience has natural correlation to R&D activities of their companies, conclusions of existing related empirical research are not consistent. According to some studies, higher levels of education of directors will promote R&D investment in high-tech industries such as chemical, pharmaceuticals, and astronavigation. Furthermore, directors with a master's or a doctoral degree may lead their partners to focus on research and development [34]. However, according to a study based on 225 listed companies in the USA in the biotechnology and pharmaceuticals industry, not all directors with doctoral degrees focus on research and development [31]. One possible reason for their findings is that they count not only PhDs as doctorates, but also JD (Doctor of Jurisprudence), and MD (Doctor of Medicine). JD and MD are mainly practice-based instead of research-based, which may interfere the causality to a certain extent. Studies base on Taiwan companies found that the higher the level of director's education is, the more R&D investment will be made [32,35]. Therefore, the following research hypotheses are proposed regarding the education levels of board directors and their relationship with R&D investment in a firm:

#### **H1a:** *The higher the proportion of directors with master's degrees is, the more R&D investment will be made.*

**H1b:** *The higher the proportion of directors with doctoral degrees is, the more investment in corporate research and development will be made.*

In addition to levels of education, the disciplinary background of directors may have influence on corporate R&D investment. Students may form different cognitive bases, depending on their training received from fields of engineering, science, arts and humanities, and social sciences [19]. Directors with degrees in science or engineering fields focus more on technical advancement, research and development innovation, and add more investment to R&D activities [36,37]. In addition, directors with background in economics and management may see economic values from innovation for research and development easier and focus more on R&D activities, depending on their knowledge of effectively controlling risks of innovation investment. Therefore, for the discipline background of directors with a postgraduate degree, research hypotheses have been proposed as follows:

**H2a:** *The higher the proportion of directors with degrees in science and engineering is, the more R&D investment will be made.*

**H2b:** *The higher the proportion of directors with degrees in economics and management is, the more R&D investment will be made.*

Institution of graduation is another possible factor that might have influence on directors' attitudes towards R&D investment. A study [31] based on listed companies in the United States indicated that directors graduating from Ivy League institutions are more likely to increase investment in corporate R&D activities as compared with those graduating from non-Ivy League institutions, likely due to more exposure to leading research and active communication with elite scholars during their graduate programs.

In China, more and more research-intensive universities are making efforts to integrate scientific research while cultivating students. In some top universities, postgraduate students are provided with opportunities to participate in scientific research, even achieving some world-level research results. Therefore, it is necessary to empirically examine whether directors who graduated from China's well-known universities pay more attention to corporate research and development. In addition, some studies also argue that entrepreneurs who graduated from institutions overseas will present the 'knowledge spillover effect' after returning to China and are likely to value innovative entrepreneurship, and research and development higher [38]. With more and more overseas postgraduate education degree holders returning, further empirical evidence is needed for the claim that directors with degrees granted by institutions outside of China are more likely to invest more on R&D activities. Therefore, for directors with master's or doctoral degrees, research hypotheses have been proposed as below:

**H3a:** *The higher the proportion of directors graduating from elite colleges and universities is, the more investment on research and development will be made.*

**H3b:** *The higher the proportion of directors graduating from overseas institutions is, the more investment on research and development will be made.*

#### **3. Methods**

#### *3.1. Data*

Data used in this research were collected from two sub-databases of the China Stock Market and Accounting Research (CSMAR), Shenzhen, China database, which contains comprehensive information of all listed companies in China in its 38 sub-databases. This project collected data from two sub-databases: role characteristics database for detailed information about board directors, and research and development sub-database for detailed expenditure on R&D activities in those

companies. The data utilized in this paper were collected through the following steps: 1) We extracted the education characteristics of board directors for the 3752 listed companies in China from the role characteristics subset of the CSMAR database. 2) We extracted the R&D expenditure, board size, and asset-liability ratio for the 3752 listed companies in China from the research and development subset of CSMAR database. 3) We matched data from the first two steps and removed companies that miss information for core variables that we are interested in, including R&D investment, industry type, asset and liability of enterprises, educational level, disciplinary background, graduation institution, and working experience of directors, which fields a final list of 1374 companies.

In the first step, we gathered original data from two CSMAR sun-databases, and 3752 companies was included. One is the role characteristics of listed company sub-database, from which we extracted directors' postgraduate education characteristics. The other is the research and development innovation sub-database, from which we extracted the firm's R&D investment, board size, asset-liability ratio, etc. The expiration date of data collection was 31 December 2017. In the second step, we matched the director's individual characteristics with the firm's financial data. In the third step, deleting observations if the core variables were missed. Finally, 1374 companies consisted of our sample. Table 1 reports the comparison between sample and population in terms of asset-liability ratio and industry distribution. Chi-squared test suggests there is no significant difference between sample and population. Therefore, there are reasons to believe that our sample represents well. 'GB/T 4754—2017' in China classifies industry into 20 categories. According to research needs, this paper recombines them into 7 groups. There are commercial companies, financial and real estate companies, public utility companies, companies in agriculture, forestry, animal husbandry, and fishery, industrial companies, cultural, educational and sports companies, and IT companies, respectively. In general, our sample includes 24 commercial companies, 16 financial and real estate companies, 67 public utility companies, 11 companies in agriculture, forestry, animal husbandry, and fishery, 1066 industrial companies, 42 cultural, educational, and sports companies, and 148 IT companies.


**Table 1.** Comparison between sample and population (%).

Note: CC: commercial companies; FR: financial and real estate companies; PU: public utility companies; AFAF: companies in agriculture, forestry, animal husbandry, and fishery; IC: industrial companies; CES: cultural, educational, and sports companies; and IT: IT companies.
