New Dogs New Tricks: CEO Turnover, CEO-related Factors, and Innovation Performance

This paper examines how CEO turnover and CEO-related factors influence innovation in the sample period 1993-2005. We find that CEO turnover is associated with significantly greater quantity and quality of future innovation, measured with the number of patents, citations, patents per research and development dollar, and citations per patent in the subsequent threeyear and five-year periods. New internal CEOs are associated with more and better innovation than new external CEOs. We also find that innovation quantity and quality are positively associated with CEO overconfidence, option compensation, and information asymmetries. These empirical results remain robust to controlling for potential endogeneity issues and confirm the critical role of CEOs in innovation performance.

[1]  Josh Lerner,et al.  Innovation and Incentives: Evidence from Corporate R&D , 2006, The Review of Economics and Statistics.

[2]  Morten Sorensen,et al.  Which CEO Characteristics and Abilities Matter? , 2008 .

[3]  Bronwyn H. Hall,et al.  The Stock Market's Valuation of R&D Investment during the 1980's , 1993 .

[4]  V. Aivazian,et al.  How Do CEOs Create Value for Their Firms? , 2011 .

[5]  Ulrike Malmendier,et al.  CEO Overconfidence and Corporate Investment , 2002 .

[6]  Darius Palia,et al.  The Impact of Regulation on CEO Labor Markets , 2000 .

[7]  Ross L. Watts,et al.  The Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies , 1992 .

[8]  Abbie J. Smith.  Corporate ownership structure and performance *1: The case of management buyouts , 1990 .

[9]  James Bessen,et al.  The Patent Litigation Explosion , 2005 .

[10]  X. Gabaix,et al.  Why Has CEO Pay Increased so Much? , 2006 .

[11]  James Guthrie,et al.  EXECUTIVE SUCCESSION: ORGANIZATIONAL ANTECEDENTS OF CEO CHARACTERISTICS , 1994 .

[12]  David H. Hsu,et al.  PATENTS AS QUALITY SIGNALS FOR ENTREPRENEURIAL VENTURES. , 2008 .

[13]  Bengt Holmstrom,et al.  AGENCY COSTS AND INNOVATION , 1989 .

[14]  E. Fama,et al.  Industry costs of equity , 1997 .

[15]  Hayne E. Leland,et al.  INFORMATIONAL ASYMMETRIES, FINANCIAL STRUCTURE, AND FINANCIAL INTERMEDIATION , 1977 .

[16]  Jan Zabojnik,et al.  Managerial Capital and the Market for CEOs , 2007 .

[17]  G. William Schwert,et al.  Money, income, and sunspots: Measuring economic relationships and the effects of differencing , 1978 .

[18]  Corporate Governance and Innovation: Theory and Evidence , 2012 .

[19]  M. C. Jensen,et al.  The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems , 1993, A Theory of the Firm.

[20]  M. Trajtenberg.  A Penny for Your Quotes : Patent Citations and the Value of Innovations , 1990 .

[21]  F. Scherer.  New Perspectives on Economic Growth and Technological Innovation , 1999 .

[22]  Robert F. Bordley,et al.  R&D and Global Manufacturing Performance , 1998 .

[23]  Patricia M. Dechow,et al.  Executive incentives and the horizon problem: An empirical investigation , 1991 .

[24]  Houman B. Shadab.  Innovation and Corporate Governance: The Impact of Sarbanes-Oxley , 2007 .

[25]  David W. Blackwell,et al.  Shelf Registration and the Reduced Due Diligence Argument: Implications of the Underwriter Certification and the Implicit Insurance Hypotheses , 1990, Journal of Financial and Quantitative Analysis.

[26]  R. Solow.  TECHNICAL CHANGE AND THE AGGREGATE PRODUCTION FUNCTION , 1957 .

[27]  Philippe Aghion,et al.  Innovation and Institutional Ownership , 2009 .

[28]  L. Bebchuk,et al.  Managerial Power and Rent Extraction in the Design of Executive Compensation , 2002 .

[29]  Jonathan Clarke,et al.  Corporate diversification and asymmetric information: evidence from stock market trading characteristics , 2004 .

[30]  Ulrike Malmendier,et al.  Corporate Financial Policies with Overconfident Managers , 2005 .

[31]  Nandu J. Nagarajan,et al.  An analysis of the stock price reaction to sudden executive deaths: Implications for the managerial labor market , 1985 .

[32]  David F. Larcker,et al.  Business unit innovation and the structure of executive compensation , 1995 .

[33]  Shijun Cheng.  R&D Expenditures and CEO Compensation , 2004 .

[34]  B. Lev,et al.  The capitalization, amortization, and value-relevance of R&D , 1996 .

[35]  M. Huson,et al.  Managerial Succession and Firm Performance , 2004 .

[36]  Kenneth A. Borokhovich,et al.  Outside Directors and CEO Selection , 1996, Journal of Financial and Quantitative Analysis.

[37]  Raphael Amit,et al.  Entrepreneurial ability, venture investments, and risk sharing , 1990 .

[38]  Z. Griliches,et al.  Patents and R and D: Is There a Lag? , 1986 .

[39]  Z. Griliches,et al.  Econometric Models for Count Data with an Application to the Patents-R&D Relationship , 1984 .

[40]  Josef Lakonishok,et al.  The Stock Market Valuation of Research and Development Expenditures , 1999 .

[41]  R. Parrino,et al.  CEO turnover and outside succession A cross-sectional analysis , 1997 .

[42]  Karel Cool,et al.  Asset stock accumulation and sustainability of competitive advantage , 1989 .

[43]  Bronwyn H Hall.  Exploring the Patent Explosion , 2004, The Journal of Technology Transfer.

[44]  Z. Griliches.  Patent Statistics as Economic Indicators: a Survey , 1990 .

[45]  Antoinette Schoar,et al.  Managing with Style: The Effect of Managers on Firm Policies , 2003 .

[46]  Jesus M. Salas.  Entrenchment, Governance, and the Stock Price Reaction to Sudden Executive Deaths , 2007 .

[47]  Rosemarie H. Ziedonis,et al.  The patent paradox revisited: an empirical study of patenting in the U , 2001 .

[48]  Shane A. Johnson,et al.  CEO Optimism and Forced Turnover , 2010 .

[49]  Michael S. Weisbach,et al.  CEO turnover and the firm's investment decisions , 1995 .

[50]  J. Lerner.  The Importance of Patent Scope: An Empirical Analysis , 1994 .

[51]  Steven N. Kaplan,et al.  Corporate Governance and Merger Activity in the United States: Making Sense of the 1980s and 1990s , 2001 .

[52]  Kevin J. Murphy,et al.  Financial performance surrounding CEO turnover , 1993 .

[53]  B. Lev.  Intangibles: Management, Measurement, and Reporting , 2001 .

[54]  Bronwyn H Hall,et al.  Market value and patent citations , 2005 .

[55]  Charles E. Wasley,et al.  The Effect of R&D Inputs and Outputs on the Relation Between the Uncertainty of Future Operating Performance and R&D Expenditures , 2009 .

[56]  Mark A. Schankerman,et al.  Patent Quality and Research Productivity: Measuring Innovation with Multiple Indicators , 2004 .

[57]  Kevin J. Murphy,et al.  Performance Pay and Top Management Incentives , 1990 .

[58]  Bang Dang Nguyen,et al.  The Value of Independent Directors: Evidence from Sudden Deaths , 2009 .

[59]  Anil K. Gupta.  Contingency Linkages Between Strategy and General Manager Characteristics: A Conceptual Examination , 1984 .

[60]  Gustavo Manso,et al.  Is Pay-for-Performance Detrimental to Innovation? , 2009, Manag. Sci..

[61]  A. Thakor,et al.  Overconfidence, CEO Selection, and Corporate Governance , 2006 .

[62]  Sudipto Bhattacharya,et al.  Innovation and Communication: Signalling with Partial Disclosure , 1983 .

[63]  Sheridan Titman,et al.  The Determinants of Capital Structure Choice , 1988 .

[64]  S. Rosen.  The Economics of Superstars , 1981 .