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The benefits of hiring a STEM CEO: Decision making under innovation and real options

Jillian Alderman, Joetta Forsyth, Charla Griffy-Brown and Richard C. Walton

Technology in Society, 2022, vol. 71, issue C

Abstract: This paper investigates when firms select CEOS with STEM qualifications in order to understand the benefits to the firm of such skills. Using CEO turnover events at S&P1500 firms, we find evidence to support the hypothesis that CEOs with a STEM degree are better able to recognize and value the real options embedded in innovation expenditures and capital projects. In technology innovation literature, ambidexterity theory features prominently explaining that innovation often emerges from leadership that is capable of making decisions amidst ambiguity. We argue that real options, a financial mechanism for budgeting amidst ambiguity, are very important with innovation. They require different methods of decision making, and a CEO with a STEM background may be best able to incorporate these decision-making methods into the firm. Consistent with this hypothesis, we find that the individual firms' R&D intensity and acquisitiveness, and industry R&D intensity and gross investment increase the probability of a firm selecting a CEO with a STEM background; whereas being in a technology industry, growth potential, and the firm's own gross investment have no direct impact on the selection of the CEO.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:teinso:v:71:y:2022:i:c:s0160791x22002056

DOI: 10.1016/j.techsoc.2022.102064

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