Does Managerial Skill Facilitate Corporate Innovative Success?
40 Pages Posted: 2 Jul 2014 Last revised: 19 Apr 2016
Date Written: June 1, 2015
This paper examines whether managerial ability facilitates corporate innovative success. First, we show that managerial ability is positively associated with innovative output. Second, we show that the positive association between managerial ability and innovative output is weaker for older CEOs and managers who stay in the same job for longer, suggesting a preference for a ‘quiet life’ by long serving CEOs. Third, we find that the equity market values patents generated by more able managers more positively, suggesting that equity holders deem better skilled managers more effective at converting innovative ideas into valuable new products. Finally, we show that managerial ability is positively associated with more ‘radical’ innovations, which are outside of the firm’s knowledge base. Overall, our results suggest that managerial ability is an essential component of corporate innovative success.
Keywords: Managerial ability; Corporate innovation; Managerial remuneration
JEL Classification: M12, G30, O31
Suggested Citation: Suggested Citation