CEO Tenure, Independent Directors and Corporate Innovation

Hsiang-Lan Chen

Journal of Applied Finance & Banking, 2013, vol. 3, issue 5, 14

Abstract: The separation of ownership and managerial control in public corporations increases the organizational implications of the CEO-Board relationship. Boards of Directors and CEOs play an integral role in shaping firm strategies; therefore, this study examines the effect of CEO tenure and the moderating influence of independent directors on corporate innovation. Using a data set of electronics firms listed on the Taiwan Stock Exchange Corporations, this study finds an inverted-U relationship between CEO tenure and corporate innovation (i.e., R&D intensity and patents), supporting the view that CEOs experience life cycles. Additionally, independent director ratio exerts a positive moderating influence on the relationship between CEO tenure and corporate innovation, supporting the view that independent directors influence managerial choices by monitoring effectively and providing important resources. The findings provide one important managerial implication that firms competing on innovation may consider giving considerable weight to the nomination of more independent directors to the board because independent directors may serve as effective guardians and resource providers to encourage CEOs to focus on innovation.

Date: 2013
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