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

Joon Mahn Lee; Jongsoo Kim; Joonhyung Bae

doi:10.1016/j.respol.2019.103862

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

Joon Mahn Lee, Jongsoo Kim, Joonhyung Bae^*

^*Corresponding author for this work

Research output: Contribution to journal › Journal article › peer-review

56 Citations (Scopus)

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.

Original language	English
Article number	103862
Journal	Research Policy
Volume	49
Issue number	1
DOIs	https://doi.org/10.1016/j.respol.2019.103862
Publication status	Published - Feb 2020

Scopus Subject Areas

Strategy and Management
Management Science and Operations Research
Management of Technology and Innovation

User-Defined Keywords

Entrepreneurship
Founder CEOs
Innovation
Natural experiment
R&D
Risk-taking

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10.1016/j.respol.2019.103862

Cite this

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title = "Founder CEOs and innovation: Evidence from CEO sudden deaths in public firms",

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{\textquoteright} 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 = "Entrepreneurship, Founder CEOs, Innovation, Natural experiment, R&D, Risk-taking",

author = "Lee, {Joon Mahn} and Jongsoo Kim and Joonhyung Bae",

note = "Funding Information: We are grateful for the insightful and constructive feedback of our editor Keld Laursen and two anonymous referees. We thank Rajshree Agarwal and seminar participants at Chinese University of Hong Kong, Korea University, Purdue University, University of Colorado at Boulder, University of Texas at Austin, 2016 Academy of Management Annual Meeting, 2016 Midwest Strategy Meeting, 2016 Strategic Management Society Conference, and 2016 Wharton Technology and Innovation Conference for their helpful comments. We also thank Tim Quigley for sharing the data on CEO sudden deaths. This study is supported by Korea University Business School Research Grant, Hong Kong Baptist University Business School Start-up Grant, and the Research Fund (1.190057.01) of UNIST. All remaining errors are ours.",

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doi = "10.1016/j.respol.2019.103862",

language = "English",

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PY - 2020/2

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N2 - 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.

AB - 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.

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

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