Open Access Journal Article

Are Inventors Better CEOs? Evidence from China

by Qifeng Zhao a,* Qianfeng Luo b Long Wang c  and  Wenyin Chen d
a
Institute of Quantitative & Technological Economics, Chinese Academy of Social Sciences, Beijing, China
b
Rural Development Institute, Chinese Academy of Social Sciences,Beijing, China
c
China Institute for Educational Finance Research, Peking University,Beijing, China
d
Institute of Developing Economies, Japan External Trade Organization, Chiba, Japan
*
Author to whom correspondence should be addressed.
Received: 28 January 2023 / Accepted: 30 March 2023 / Published Online: 20 April 2023

Abstract

This study investigates the impact of inventor CEOs on firm performance using a manually collected database of firms' inventors. Our findings reveal that, on average, firms with inventor CEOs experience a one- and two-percentage-point increase in ROA and ROE, respectively, compared to firms with noninventor CEOs. To address potential endogeneity issues, we employ turnover analysis, an instrumental variable approach, and propensity score matching. The estimation results suggest that inventor CEOs significantly enhance firm performance by fostering innovation and total factor productivity. This research contributes novel evidence on the relationship between inventor CEOs and firm performance.


Copyright: © 2023 by Zhao, Luo, Wang and Chen. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

Share and Cite

ACS Style
Zhao, Q.; Luo, Q.; Wang, L.; Chen, W. Are Inventors Better CEOs? Evidence from China. Review of Economic Assessment, 2023, 2, 6. https://doi.org/10.58567/rea02010001
AMA Style
Zhao Q, Luo Q, Wang L, Chen W. Are Inventors Better CEOs? Evidence from China. Review of Economic Assessment; 2023, 2(1):6. https://doi.org/10.58567/rea02010001
Chicago/Turabian Style
Zhao, Qifeng; Luo, Qianfeng; Wang, Long; Chen, Wenyin 2023. "Are Inventors Better CEOs? Evidence from China" Review of Economic Assessment 2, no.1:6. https://doi.org/10.58567/rea02010001
APA style
Zhao, Q., Luo, Q., Wang, L., & Chen, W. (2023). Are Inventors Better CEOs? Evidence from China. Review of Economic Assessment, 2(1), 6. https://doi.org/10.58567/rea02010001

Article Metrics

Article Access Statistics

References

  1. Acharya, V. V., & Subramanian, K. V. (2009). Bankruptcy codes and innovation. Review of Financial Studies, 22(12), 4949-4988. https://doi.org/10.1093/rfs/hhp019
  2. Aghion, P., Bloom, N., Blundell, R., Griffith, R., & Howitt, P. (2005). Competition and innovation: An inverted-U relationship. Quarterly Journal of Economics, 120(2), 701-728. https://doi.org/10.1093/qje/120.2.701
  3. Aghion, P., Van Reenen, J., & Zingales, L. (2013). Innovation and institutional ownership. American Economic Review, 103(1), 277-304. https://doi.org/10.1257/aer.103.1.277
  4. Artz, K. W., Norman, P. M., Hatfield, D. E., & Cardinal, L. B. (2010). A longitudinal study of the impact of R&D, patents, and product innovation on firm performance. Journal of Product Innovation Management, 27(5), 725-740. https://doi.org/10.1111/j.1540-5885.2010.00747.x
  5. Balsmeier, B., Fleming, L., & Manso, G. (2017). Independent boards and innovation. Journal of Financial Economics, 123(3), 536-557. https://doi.org/10.1016/j.jfineco.2016.12.005
  6. Bennedsen, M., Pérez‐González, F., & Wolfenzon, D. (2020). Do CEOs matter? Evidence from hospitalization events. Journal of Finance, 75(4), 1877-1911. https://doi.org/10.1111/jofi.12897
  7. Bereskin, F. L., & Hsu, P. H. (2014). Bringing in changes: The effect of new CEOs on innovation. SSRN Working Paper, No. 1684329. https://dx.doi.org/10.2139/ssrn.1684329
  8. Bernile, G., Bhagwat, V., & Rau, P. R. (2017). What does not kill you will only make you more risk‐loving: Early‐life disasters and CEO behavior. Journal of Finance, 72(1), 167-206. https://doi.org/10.1111/jofi.12432
  9. Calantone, R. J., Cavusgil, S. T., & Zhao, Y. (2002). Learning orientation, firm innovation capability, and firm performance. Industrial Marketing Management, 31(6), 515-524. https://doi.org/10.1016/S0019-8501(01)00203-6
  10. Chang, X., Fu, K., Low, A., & Zhang, W. (2015). Nonexecutive employee stock options and corporate innovation. Journal of Financial Economics, 115(1), 168-188. https://doi.org/10.1016/j.jfineco.2014.09.002
  11. Chava, S., Oettl, A., Subramanian, A., & Subramanian, K. V. (2013). Banking deregulation and innovation. Journal of Financial Economics, 109(3), 759-774. https://doi.org/10.1016/j.jfineco.2013.03.015
  12. Cho, H. J., & Pucik, V. (2005). Relationship between innovativeness, quality, growth, profitability, and market value. Strategic Management Journal, 26(6), 555-575. https://doi.org/10.1002/smj.461
  13. Custódio, C., & Metzger, D. (2013). How do CEOs matter? The effect of industry expertise on acquisition returns. Review of Financial Studies, 26(8), 2008-2047. https://doi.org/10.1093/rfs/hht032
  14. Custódio, C., & Metzger, D. (2014). Financial expert CEOs: CEO׳ s work experience and firm’s financial policies. Journal of Financial Economics, 114(1), 125-154. https://doi.org/10.1016/j.jfineco.2014.06.002
  15. Custódio, C., Ferreira, M. A., & Matos, P. (2019). Do general managerial skills spur innovation?. Management Science, 65(2), 459-476. https://doi.org/10.1287/mnsc.2017.2828
  16. Daellenbach, U. S., McCarthy, A. M., & Schoenecker, T. S. (1999). Commitment to innovation: The impact of top management team characteristics. R&D Management, 29(3), 199-208. https://doi.org/10.1111/1467-9310.00130
  17. Dearborn, D. C., & Simon, H. A. (1958). Selective perception: A note on the departmental identifications of executives. Sociometry, 21(2), 140-144. https://doi.org/10.2307/2785898
  18. Dittmar, A., & Duchin, R. (2016). Looking in the rearview mirror: The effect of managers' professional experience on corporate financial policy. Review of Financial Studies, 29(3), 565-602. https://doi.org/10.1093/rfs/hhv051
  19. Donaldson, L. (1997). Strategic leadership: top executives and their effects on organizations. Australian Journal of Management, 22(2), 221-224. https://doi.org/10.1177/031289629702200205
  20. Faleye, O., Kovacs, T., & Venkateswaran, A. (2014). Do better-connected CEOs innovate more?. Journal of Financial and Quantitative Analysis, 49(5-6), 1201-1225. https://doi.org/10.1017/S0022109014000714
  21. Geroski, P., Machin, S., & van Reenen, J. (1993). The Profitability of Innovating Firms. RAND Journal of Economics, 24(2), 198-211. https://doi.org/10.2307/2555757
  22. Giannetti, M., Liao, G., & Yu, X. (2015). The brain gain of corporate boards: Evidence from China. Journal of Finance, 70(4), 1629-1682. https://doi.org/10.1111/jofi.12198
  23. Hall, B. H., & Ziedonis, R. H. (2001). The patent paradox revisited: an empirical study of patenting in the US semiconductor industry, 1979–1995. RAND Journal of Economics, 32(1), 101-128. https://doi.org/10.2307/2696400
  24. Hall, B. H., Jaffe, A., & Trajtenberg, M. (2005). Market Value and Patent Citations. RAND Journal of Economics, 36(1), 16-38. http://www.jstor.org/stable/1593752
  25. Hall, B. H., Mairesse, J., & Mohnen, P. (2010). Handbook of the Economics of Innovation. Amsterdam: Elsevier Press. https://doi.org/10.1016/S0169-7218(10)01001-4
  26. Heavey, C., Simsek, Z., Fox, B. C., & Hersel, M. C. (2022). Executive confidence: A multidisciplinary review, synthesis, and agenda for future research. Journal of Management, 48(6), 1430-1468. https://doi.org/10.1177/01492063211062566
  27. Hirshleifer, D., Hsu, P. H., & Li, D. (2013). Innovative efficiency and stock returns. Journal of Financial Economics, 107(3), 632-654. https://doi.org/10.1016/j.jfineco.2012.09.011
  28. Hirshleifer, D., Low, A., & Teoh, S. H. (2012). Are overconfident CEOs better innovators?. Journal of Finance, 67(4), 1457-1498. https://doi.org/10.1111/j.1540-6261.2012.01753.x
  29. Islam, E., & Zein, J. (2020). Inventor CEOs. Journal of Financial Economics, 135(2), 505-527. https://doi.org/10.1016/j.jfineco.2019.06.009
  30. Jiang, H., & Liu, C. (2020). Economic policy uncertainty, CEO characteristics and firm R&D expenditure: A Bayesian analysis. Applied Economics, 52(34), 3709-3731. https://doi.org/10.1080/00036846.2020.1721422
  31. Kaplan, S. N., Klebanov, M. M., & Sorensen, M. (2012). Which CEO characteristics and abilities matter?. Journal of Finance, 67(3), 973-1007. https://doi.org/10.1111/j.1540-6261.2012.01739.x
  32. Kaplan, S. N., Sørensen, M., & Zakolyukina, A. A. (2022). What is CEO overconfidence? Evidence from executive assessments. Journal of Financial Economics, 145(2), 409-425. https://doi.org/10.1016/j.jfineco.2021.09.023
  33. Lerner, J., & Wulf, J. (2007). Innovation and incentives: Evidence from corporate R&D. Review of Economics and Statistics, 89(4), 634-644. https://doi.org/10.1162/rest.89.4.634
  34. Lerner, J., Sorensen, M., & Strömberg, P. (2011). Private equity and long‐run investment: The case of innovation. Journal of Finance, 66(2), 445-477. https://doi.org/10.1111/j.1540-6261.2010.01639.x
  35. Levinsohn, J., & Petrin, A. (2003). Estimating production functions using inputs to control for unobservables. Review of Economic Studies, 70(2), 317-341. https://doi.org/10.1111/1467-937X.00246
  36. Lyandres, E., & Palazzo, B. (2016). Cash Holdings, Competition, and Innovation. Journal of Financial and Quantitative Analysis, 51(6), 1823-1861. https://doi.org/10.1017/S0022109016000697
  37. Malmendier, U., & Tate, G. (2005). CEO overconfidence and corporate investment. Journal of Finance, 60(6), 2661-2700. https://doi.org/10.1111/j.1540-6261.2005.00813.x
  38. Manso, G. (2011). Motivating innovation. Journal of Finance, 66(5), 1823-1860. https://doi.org/10.1111/j.1540-6261.2011.01688.x
  39. Menz, M. (2012). Functional top management team members: A review, synthesis, and research agenda. Journal of Management, 38(1), 45-80. https://doi.org/10.1177/0149206311421830
  40. Olley, G. S., & Pakes, A. (1996). The Dynamics of Productivity in the Telecommunications Equipment. Econometrica, 64(6), 1263-1297. https://doi.org/10.2307/2171831
  41. Porter, M. (1979). How Competitive Forces Shape Strategy. Harvard Business Review, 57(2), 137-145. https://doi.org/10.1007/978-1-349-20317-8_10
  42. Porter, M. E. (1992). Capital disadvantage: America’s failing capital investment system. Harvard Business Review, 70(5), 65-82.
  43. Roberts, P. W. (1999). Product innovation, product–market competition and persistent profitability in the US pharmaceutical industry. Strategic Management Journal, 20(7), 655-670. https://doi.org/10.1002/(SICI)1097-0266(199907)20:7<655::AID-SMJ44>3.0.CO;2-P
  44. Sapra, H., Subramanian, A., & Subramanian, K. V. (2014). Corporate governance and innovation: Theory and evidence. Journal of Financial and Quantitative Analysis, 49(4), 957-1003. https://doi.org/10.1017/S002210901400060X
  45. Schumpeter, J. A. (1934). The Theory of Economic Development. MA: Harvard Press.
  46. Sharma, A., & Lacey, N. (2004). Linking product development outcomes to market valuation of the firm: The case of the US pharmaceutical industry. Journal of Product Innovation Management, 21(5), 297-308. https://doi.org/10.1111/j.0737-6782.2004.00084.x
  47. Solow, R. M. (1957). Technical Change and the Aggregate Production Function. Review of Economics and Statistics, 39(3), 312-320. https://doi.org/10.2307/1926047
  48. Therrien, P., Doloreux, D., & Chamberlin, T. (2011). Innovation novelty and (commercial) performance in the service sector: A Canadian firm-level analysis. Technovation, 31(12), 655-665. https://doi.org/10.1016/j.technovation.2011.07.007
  49. Tian, X., & Wang, T. Y. (2014). Tolerance for failure and corporate innovation. Review of Financial Studies, 27(1), 211-255. https://doi.org/10.1093/rfs/hhr130
  50. Wiersema, M. F., & Bantel, K. A. (1992). Top management team demography and corporate strategic change. Academy of Management Journal, 35(1), 91-121. https://doi.org/10.5465/256474
  51. Wooldridge, J. M. (2010). Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press. http://www.jstor.org/stable/j.ctt5hhcfr
  52. Xue, Y. (2007). Make or buy new technology: The role of CEO compensation contract in a firm’s route to innovation. Review of Accounting Studies, 12(4), 659-690. https://doi.org/10.1007/s11142-007-9039-y