Year of Graduation
Influence of CEO's Propensity to Innovate on Company Performance
Strategic Corporate Finance
Is the positive relation between innovations and firm performance is higher in firms led by more innovative chief executive officers (CEOs)? This research uses two measures to identify more innovative CEOs: overconfidence - based on prior literatures definition, and career horizon - based on sample features and authors’ assumptions. The sample consists of data from Capital IQ S&P 500 and Bloomberg databases for the years from 2006 to 2015. We begin by developing a model, which tests our concerns for subgroups based on CEO’s characteristics. We use alternative explanations, leading to a conclusion that this relation works for innovations output (weighted patents), while it does not for innovations input (R&D). CEO’s propensity to innovate combines overconfidence and career horizon. Our evidence highlights CEO’s propensity to innovate as a valuable characteristic that can be used to identify firms where the positive relation between innovations and performance is stronger.