CEO locality and R&D investment efficiency: Evidence from China

Yue Cao, Yancen Dong, Wenrui Chen, Jiaqian Fu and Huitao Luo

Economic Modelling, 2025, vol. 150, issue C

Abstract: This study investigates the impact of CEO locality on R&D investment efficiency, addressing the underexplored economic impacts of informal managerial characteristics in corporate decision-making. Using data from Chinese A-share listed firms from 2008 to 2020, we find that CEO locality significantly reduces upward distortion in R&D expense manipulation, driven by alleviating information asymmetry and managerial myopia. The mitigating effect is more pronounced in firms with higher board ownership and greater cash reserves, in regions with robust legal systems, closer to local regulatory authorities, and in cultural environments characterized by Confucian and collaborative values. Moreover, local CEOs’ efforts to curb R&D manipulation can curb opportunistic innovation activities, thereby mitigating innovation bubbles. These findings not only shed new light on the role of informal institutions in corporate governance but also provide implications for executive recruitment strategies and innovation oversight policies.

Keywords: Local CEO; R&D investment efficiency; Upper echelon theory (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:150:y:2025:i:c:s0264999325001488

DOI: 10.1016/j.econmod.2025.107153

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