Outside CEOs and Innovation

48 Pages Posted: 8 Feb 2017 Last revised: 6 Dec 2017

See all articles by Trey Cummings

Trey Cummings

Washington University in Saint Louis - John M. Olin Business School

Anne Marie Knott

Washington University in St. Louis - John M. Olin Business School

Date Written: December 2, 2017

Abstract

Innovation is the principle driver of firm and economic growth. Thus one disturbing trend that may explain stagnant growth is a 65% decline in firms’ RQ. We propose that the rise of outside CEOs is partially responsible for the decline. While this proposition was motivated by interviews with CTOs, we test whether it holds at large scale. We find that firm RQ decays during the tenure of Outside CEOs relative to that of internal CEOs. We further find this effect is more pronounced for firms with high R&D intensity, and for CEOs with more remote experience. Thus the decay appears to stem from lack of domain expertise. Note however we do not advocate avoiding outside CEOs. Rather we caution that firms consider their implications for innovation.

Keywords: CEO, expertise, incentives, innovation

JEL Classification: L25, M12, M51, M52, O32

Suggested Citation

Cummings, Trey and Knott, Anne Marie, Outside CEOs and Innovation (December 2, 2017). Available at SSRN: https://ssrn.com/abstract=2912468 or http://dx.doi.org/10.2139/ssrn.2912468

Trey Cummings

Washington University in Saint Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Anne Marie Knott (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States

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