The Exploratory Mindset and Corporate Innovation

71 Pages Posted: 13 May 2019 Last revised: 15 May 2019

See all articles by Zhaozhao He

Zhaozhao He

University of New Hampshire - Department of Accounting & Finance

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Date Written: May 13, 2019

Abstract

We propose that CEOs with an exploratory mindset, proxied by having a PhD degree, are patient at managing innovation, possibly owing to their long-term orientation and strong intrinsic motivation. Firms with PhD CEOs produce more exploratory patents with greater novelty, generality and originality. PhD CEOs engage less in management for short-term results, invest more in R&D and strategic alliances, generate greater value of patents, and experience more positive market reactions to R&D alliances. They tend to be hired by firms with strong research opportunities but poor financial performance. Evidence from managerial incentive shocks and likely-exogenous CEO turnovers suggest that our results are not solely driven by CEO-firm matching. PhD firms are on average undervalued and subsequently achieve positive abnormal returns and superior long-run operating performance.

Keywords: exploration, long-term mindset, PhD CEO, innovation, intrinsic motivation, patience, managerial short-termism

JEL Classification: G30, O31, J44

Suggested Citation

He, Zhaozhao and Hirshleifer, David A., The Exploratory Mindset and Corporate Innovation (May 13, 2019). Available at SSRN: https://ssrn.com/abstract=3378057 or http://dx.doi.org/10.2139/ssrn.3378057

Zhaozhao He (Contact Author)

University of New Hampshire - Department of Accounting & Finance ( email )

Durham, NH 03824
United States
603-862-3355 (Phone)

HOME PAGE: http://sites.google.com/site/zhaozhaohe

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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