Founder CEOs and Innovation: Evidence from S&P 500 Firms

37 Pages Posted: 17 Feb 2016  

Joon Mahn Lee

Purdue University - Krannert School of Management

Jongsoo Kim

Purdue University - Department of Management

Joonhyung Bae

Purdue University - Krannert School of Management

Date Written: February 17, 2016

Abstract

Using a novel data set on founder CEOs in S&P 500 firms for the period from 1993 to 2003, this paper investigates the relationship between founder CEOs and innovation. While entrepreneurs as individuals have long been considered change agents, it is not clear whether entrepreneurs as managers of large organizations may facilitate organizations’ innovation performance. Our main results show that the existence of a founder CEO is correlated with a 31 percent increase in the citation-weighted patent count before we control for R&D spending and a 23 percent increase in the citation-weighted patent count after we control for R&D spending, suggesting that founder CEOs are more effective and efficient innovators than professional CEOs. As boundary conditions of the relationship, we find that the positive effect of founder CEOs on innovation is stronger in more competitive and innovative industries. Furthermore, our results suggest that founder CEOs are more likely to take their firms in a new technological direction. Finally, we provide evidence that the innovations of founder CEO-managed firms create more financial value than the innovations of professional CEO-managed firms. Our findings are particularly convincing because the results are consistent across various robustness checks that control for potential selection issues and other endogeneity concerns.

Keywords: founder CEOs; innovation; R&D; entrepreneurship; behavioral strategy

Suggested Citation

Lee, Joon Mahn and Kim, Jongsoo and Bae, Joonhyung, Founder CEOs and Innovation: Evidence from S&P 500 Firms (February 17, 2016). Available at SSRN: https://ssrn.com/abstract=2733456 or http://dx.doi.org/10.2139/ssrn.2733456

Joon Mahn Lee (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Jongsoo Kim

Purdue University - Department of Management ( email )

West Lafayette, IN 47907-1310
United States

Joonhyung Bae

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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