Managerial Risk-Taking Incentive and Firm Innovation: Evidence from FAS 123R

Mao, Connie X.; Zhang, Chi

doi:10.1017/s002210901700120x

Cited by 158 publications

(93 citation statements)

References 56 publications

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“…Such studies have observed incentive schemes to not only impact firm productivity, firm value and profitability (Jensen and Murphy, 1990;Sun et al, 2009;Nguyen, 2018) but also corporate social performance (Deckop et al, 2006). The results also complement more recent studies that observe CEO risk-taking incentives to encourage risky investments (Chen, 2017), as well as enhance innovation output quantity and quality (Mao and Zhang, 2018),…”

Section: Ceo Dominance and Firm Innovationsupporting

confidence: 79%

CEO dominance and firm innovation effort

Prugsamatz

2021

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PurposeThe purpose of this paper is to investigate whether innovation effort is lower for firms exhibiting signs of higher chief executive officer (CEO) dominance and whether such CEOs can be incentivized to pursue risky ventures such as innovation projects in line with shareholder's interests that are geared toward the long-term growth of the firm.Design/methodology/approachThe paper utilizes panel data of US publicly listed companies (2007–2016) to address the influence of CEO dominance on firm innovation effort and the moderating effects of incentives in this relationship through ordinary least squares (OLS) estimations. A two-stage least squares (2SLS) technique is also employed to address possible endogeneity. As a robustness check, further analysis is conducted utilizing an alternative proxy for CEO incentive as well as Tobit analysis (with panel-level random effects).FindingsResults from both OLS and Tobit estimations offer two key findings. First, there is a significantly negative relationship between CEO pay slice and firm research and development (R&D) intensity. Second, the interaction effect of CEO incentives and CEO dominance is significant and positive.Research limitations/implicationsWhen provided with the right incentives, such as those that reward long-term performance, dominant CEOs can be incentivized to go after risky ventures like innovation projects that are crucial to promoting the long-term growth of the firm.Originality/valueThis paper utilizes R&D instead of patent outputs as proxies for innovation where the former enables studying R&D efforts for more recent periods compared to prior studies that utilize patent data.

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Section: Ceo Dominance and Firm Innovationsupporting

confidence: 79%

CEO dominance and firm innovation effort

Prugsamatz

2021

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“…Moreover, managers having shares within the organization compel him to intensify the organizational innovation. Keeping this view in the same vein, Mao [19] revealed that compensation packages also allure CEOs to orientate towards innovation. Galasso [16] that overconfident CEOs are over-optimistic and always take the risky decisions which ultimately orientate them to invest more in innovation.…”

Section: Corporate Governance and Innovationmentioning

confidence: 97%

“…Manifestly, a voluminous literature has already evaluated the attributes of CEO influencing the innovation within the organization. In this regard, the prior literature has contemplated that, overconfidence, personal links, young age and alluring compensation packages of the incumbent CEO orientate him or her towards innovative adaptability [16][17][18][19]. However, it is not being able to evaluate the aftermath of CEO succession on innovation.…”

Section: Introductionmentioning

confidence: 99%

Do Hierarchical Jumps in CEO Succession Invigorate Innovation? Evidence from Chinese Economy

et al. 2019

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The objective of this study is to analyze Chief executive officer (CEO) succession via hierarchical jumps in Chinese listed firms which orientate towards innovative activity. Good corporate governance is a vehicle to attain the competitive advantage which ultimately makes the organizational sustainability undeterred. The current study will test not only low hierarchical jumps but also medium hierarchical jumps in CEO succession. The study will identify the relationship between specific attributes like education, age and the duality of CEO successors via hierarchical jumps with innovation. We have analysed the data of Chinese listed firms on Shenzhen and Shanghai stock exchanges for the years 2012–2016. Significantly, it has been observed that CEO successors via hierarchical jumps orientate towards innovative activity amongst Chinese listed firms. Conclusively, empirical results have unveiled that hierarchical CEO succession escalates the firms’ innovation. It has also been contemplated that not only the low hierarchical jumps but also medium hierarchical jumps in CEO succession invigorate the organizational innovation. Mature firms with a substantial return on assets or earning per share and having less loan burden concentrate on innovative activity decisively. It has been demonstrated that specific attributes like education, age and the duality of hierarchical CEO successors have no relationship with innovation. The study results are robust via confirmation of 2SLS instrumental regression.

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“…With regard to innovation output, researchers primarily consider the number of patents (e.g., Balsmeier, Buchwald, & Stiebale, 2014;Mao & Zhang, 2018) and patent citations (e.g., Faleye, Hoitash, & Hoitash, 2011;Martin, Washburn, Makri, & Gomez-Mejia, 2015).…”

Section: Innovation Outputmentioning

confidence: 99%

“…Whereas earlier studies often used simple approaches, such as lagging variables or conducting additional subgroup analyses as indicators for causal relationships (e.g., Barker & Mueller, 2002;Deutsch, 2007), recent studies employ more sophisticated methods, such as incorporating fixed effects (e.g., Ammann, Horsch, & Oesch, 2016;Makri, Lane, & Gomez-Mejia, 2006), employing two-stage analyses (e.g., Gerstner, König, Enders, & Hambrick, 2013;Maula, Keil, & Zahra, 2013), or using suitable instrument variables (e.g., Chemmanur, Kong, Krishnan, & Yu, 2019;Kini & Williams, 2012). In addition, some scholars use matched sample approaches (e.g., Ammann, Horsch, & Oesch, 2016;Cremers, Litov, & Sepe, 2017) or examine changes in innovation outcomes after exogenous events, such as exogenous executive turnover (e.g., Balsam, Puthenpurackal, & Upadhyay, 2016;Cummings & Knott, 2018) and regulatory changes (e.g., Balsmeier, Fleming, & Manso, 2017;Mao & Zhang, 2018) or shocks, such as terrorist attacks and the Lehman Brothers bankruptcy (Hutton, Jiang, & Kumar, 2014).…”

Section: Endogeneitymentioning

confidence: 99%

Strategic leadership and technological innovation: A comprehensive review and research agenda

Kurzhals

Graf‐Vlachy

König

2020

Corporate Governance

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Research Question/Issue We review the literature on the relationship between strategic leadership and technological innovation. Research Findings/Insights We identify the theoretical lenses that researchers apply when studying strategic leadership and innovation, most notably agency theory and upper echelons theory. We review the innovation constructs and measures that scholars employ, and we survey the links among strategic leaders' characteristics and technological innovation. Ultimately, we organize the literature into an integrative framework that provides a concise overview of the extant knowledge, and we outline an agenda for future research. Theoretical/Academic Implications First, we offer scholars a discipline‐spanning overview of the extant knowledge on the topic. Second, by integrating important aspects of corporate governance, such as the role of the board of directors, incentives for the chief executive officer or the top management team, and firm ownership, into the context of technological innovation, we highlight the vital role it plays in the realm of technological innovation. Third, we provide a useful guide for scholars and direct their work towards fruitful avenues for future research. Practitioner/Policy Implications We offer insights for practitioners interested in better understanding the bidirectional relationship between strategic leadership and technological innovation. In particular, our framework and our detailed analysis of the impact of strategic leaders on technological innovation can guide shareholders and board members in matters related to board composition as well as top executive selection and compensation.

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Managerial Risk-Taking Incentive and Firm Innovation: Evidence from FAS 123R

Cited by 158 publications

References 56 publications

CEO dominance and firm innovation effort

CEO dominance and firm innovation effort

Do Hierarchical Jumps in CEO Succession Invigorate Innovation? Evidence from Chinese Economy

Strategic leadership and technological innovation: A comprehensive review and research agenda

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