Do Better-Connected CEOs Innovate More?

56 Pages Posted: 22 Aug 2011 Last revised: 9 Aug 2013

See all articles by Olubunmi Faleye

Olubunmi Faleye

Northeastern University - Finance Group

Tunde Kovacs

University of Massachusetts Lowell

Anand Venkateswaran

Northeastern University - Finance and Insurance Area

Date Written: September 20, 2012

Abstract

This paper presents evidence suggesting that CEO connections facilitate investments in corporate innovation. We find that firms with better-connected CEOs invest more in R&D and receive more and higher quality patents. Further tests suggest that this effect stems from two characteristics of personal networks that alleviate CEO risk aversion in corporate investment decisions. First, personal connections increase the CEO’s access to relevant network information, which encourages innovation by helping the CEO to identify, evaluate, and exploit innovative ideas. Second, personal connections provide the CEO with labor market insurance that facilitates investments in risky innovation by mitigating the career concerns inherent in such investments.

Keywords: Innovation, Patents, R&D, CEO networks

JEL Classification: O31

Suggested Citation

Faleye, Olubunmi and Kovacs, Tunde and Venkateswaran, Anand, Do Better-Connected CEOs Innovate More? (September 20, 2012). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1913906 or http://dx.doi.org/10.2139/ssrn.1913906

Olubunmi Faleye (Contact Author)

Northeastern University - Finance Group ( email )

Boston, MA 02115
United States

Tunde Kovacs

University of Massachusetts Lowell ( email )

1 University Ave
Lowell, MA 01854
United States

Anand Venkateswaran

Northeastern University - Finance and Insurance Area ( email )

Boston, MA 02115
United States

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