Impacts of top management team fault‐line on firm's innovation—Financial slack over‐investment and underinvestment

Yun Song, Hongqu He and Caiyu Yan

Managerial and Decision Economics, 2022, vol. 43, issue 8, 3348-3360

Abstract: This paper aims to how the top management team (TMT) fault‐line affects firm's innovation based on the data of Chinese listed companies from 2009 to 2018. We describe innovation from two dimensions (quantity and quality) in order to better demonstrating of firm's innovation. The empirical results find that the intensity of TMT fault‐line has significant positive impacts on both quantity and quality. Then, we propose three potential mechanisms that include financial slack, over‐investment, and underinvestment and further discuss and explore them. It is found that the intensity of TMT fault‐line promotes the quantity and of innovation through decreasing financial slack, however, cannot affect the quality of innovation. There is a significant negative relationship between TMT fault‐line and over‐investment that enterprise should reduce over‐investment to trigger both quantity and quality. Finally, the results show that TMT fault‐line could alleviate underinvestment and then improve firm's innovation both on quantity and quality. This paper also has verified the robustness of estimation according to instrumental variable method, alternative variables, and adjusting time windows.

Date: 2022
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https://doi.org/10.1002/mde.3599

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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:43:y:2022:i:8:p:3348-3360

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