Hospitals in Taiwan are facing major changes and innovation is increasingly becoming a critical factor for remaining competitive. One determinant that can have a significant impact on innovation is hospital governance. However, there is limited prior research on the relationship between hospital governance and innovation. The purpose of this study is to propose a conceptual framework to hypothesize the relationship between governance mechanisms and innovation and to empirically test the hypotheses in hospital organizations. We examine the relationship between governance mechanisms and innovation using data on 102 hospitals in Taiwan from the Taiwan Joint Commission on Hospital Accreditation and Quality Improvement. We model governance mechanisms using board structure, information transparency and strategic decision‐making processes. For our modeling and data analysis we use measurement and structural models. We find that in hospital governance, information transparency and strategic decision making did impact innovation. However, governance structure did not. To facilitate innovation, hospital boards can increase information transparency and improve the decision‐making process when considering strategic investments in innovative initiatives. To remain competitive, hospital boards need to develop and monitor indices that measure hospital innovation to ensure ongoing progress.