How CEOs with different characteristics act differently on R&D investment under the condition of financial constraints is an important but understudied question towards firms’ sustainable innovation. Employing the dataset from China-Enterprise Survey 2012 of the World Bank, this study tests the impact of financial constraints on firms’ R&D investment and the moderating role of CEO characteristics. Empirical results show that: (1) firm’s financial constraints have a significant restricting effect on their R&D investment; (2) internal financial constraints have no significant restricting effect on R&D investment for firms with female CEOs in comparison with firms with male CEOs, while the external financial constraints have a significant restricting effect on R&D investment for both groups. (3) CEO experience has a non-linear moderating effect on the relationship between financial constraints and a firm’s R&D investment. When the accumulated experience is overloaded, the positive moderating effect of CEO experience begins to decline and even become negative. Robustness tests further confirm these empirical findings. This study directly contributes to the literature of financing innovation and top management team’s impact on firms’ sustainable innovation, and generates insights on firms’ R&D management under the condition of financial constraints.
Purpose Significant increase or decrease in research and development (R&D) expenditure may have an immense impact on market value. Based on the punctuated equilibrium theory, this paper aims to empirically analyze the impact of R&D volatilities on market value and the moderating effect of executive overconfidence. Design/methodology/approach The study uses the panel data set that covers 902 Shanghai and Shenzhen A-share manufacturing listed firms and multiple regression method to test the theoretical hypotheses. Findings The results show that both positive and negative R&D volatilities have a robust and significant positive impact on the market value. Further analysis shows that the executive overconfidence positively moderates the relationship between R&D volatilities and market value. Research limitations/implications In a rapidly changing and highly competitive environment, firms should recognize that the balance of innovation strategies will help to bring higher market value. Furthermore, firms could improve corporate governance to make the best of managerial characteristics, such as overconfidence, on the innovation decision-making process. Originality/value By pushing the static perspective to a dynamic perspective and empirically documenting the role of executive overconfidence, this study contributes to the literature on the relationship between R&D expenditure and market value, generating theoretical and practical insights for firms to improve innovation governance and innovation strategies to achieve better business performance.
Innovation scholars highlight the economic benefits to firms, while research findings on the relationship between innovation output and economic returns remain mixed. In this study, we develop the profiting from innovation (PFI) framework and address the crucial role of financial constraints in the relationship between innovation output and financial performance. We argue that the liability of newness differentiates firms’ financial performance during the commercialization of innovation, leading to a U-shaped relationship between firms’ innovation output and financial performance. We further document the moderating impact of individual financial constraints (IFC) and market-based financial constraints (MFC) on this curvilinear relationship. Empirical tests based on the 142,972 firm-year observations of the multi-source dataset of Chinese manufacturing firms from 1999–2009 support our hypotheses. The additional analysis shows that non-state-owned enterprises and small and medium enterprises benefit more from the synergistic effect of reductions of IFC and MFC than state-owned enterprises and large firms. Our study enriches the literature of the PFI framework by uncovering the mechanism between innovation output and economic returns where financial constraints play an essential role. To the best of our knowledge, we are among the first to investigate the processes and mechanisms between innovation output and financial performance, generating novel insights for business practitioners and policymakers.
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