Does Managerial Skill Facilitate Corporate Innovative Success?

40 Pages Posted: 2 Jul 2014 Last revised: 19 Apr 2016

See all articles by Yangyang Chen

Yangyang Chen

Hong Kong Polytechnic University - Faculty of Business

Edward Podolski

Deakin University; Financial Research Network (FIRN)

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area

Date Written: June 1, 2015

Abstract

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

Chen, Yangyang and Podolski, Edward and Veeraraghavan, Madhu, Does Managerial Skill Facilitate Corporate Innovative Success? (June 1, 2015). Journal of Empirical Finance 34, 313-326, December 2015. Available at SSRN: https://ssrn.com/abstract=2461048 or http://dx.doi.org/10.2139/ssrn.2461048

Yangyang Chen (Contact Author)

Hong Kong Polytechnic University - Faculty of Business ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Edward Podolski

Deakin University ( email )

221 Burwood Highway
Burwood, Victoria 3125
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

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