Founder CEOs and innovation: Evidence from CEO sudden deaths in public firms

Joon Mahn Lee, Jongsoo Kim and Joonhyung Bae

Research Policy, 2020, vol. 49, issue 1

Abstract: Using a unique dataset on U.S. publicly listed firms that experienced sudden deaths of CEOs during the 1979–2002 period, this paper investigates the relationship between founder CEOs and innovation in public firms. Our main results show that the exogenous change from a founder CEO to a professional CEO is associated with a 43.8% decrease in a firm's citation-weighted patent count, even when controlling for R&D expenditures, suggesting that founder CEOs are better managers of innovations than professional CEOs. To better understand the relationship, we also explore plausible mechanisms that may underlie this relationship. Our analyses show that founder-CEO-managed firms are more likely to generate innovations at the both tails of innovations’ quality distribution (highest and lowest quality patents) and explorative patents than professional-CEO-managed firms. We also determine that change in leadership from a founder CEO to a professional CEO leads employee inventors to leave the firm, suggesting that founder CEOs are better at retaining innovative minds than professional CEOs. However, we do not find evidence that founder-CEO-managed firms allocate more capital to R&D investments than professional-CEO-managed firms.

Keywords: Founder CEOs; Innovation; Entrepreneurship; R&D; Risk-taking; Natural experiment (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:49:y:2020:i:1:s0048733319301817

DOI: 10.1016/j.respol.2019.103862

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