Director Job Security and Corporate Innovation

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

80 Pages Posted: 22 Jan 2020 Last revised: 28 Sep 2022

See all articles by Po-Hsuan Hsu

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance; National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Yiqing Lü

New York University (NYU) - New York University (NYU), Shanghai

Hong Wu

Fudan University - School of Economics

Yuhai Xuan

University of California, Irvine - Paul Merage School of Business

Date Written: September 1, 2022

Abstract

In this paper, we show that firms can become conservative in innovation when their directors face job insecurity. We find that after the staggered enactment of majority voting legislation that strengthens shareholders' power in director elections, firms produce fewer patents, particularly exploratory patents, and fewer forward citations. This effect is stronger for directors facing higher dismissal costs or threats and for firms with greater needs for board expertise and is mitigated by institutional investors' expertise in innovation. Overall, our results suggest that heightened job insecurity induces director myopia, which leads to a reduction in investment in risky, long-term innovation projects.

Keywords: director reelection, job security, corporate governance, innovation, exploration and exploitation

JEL Classification: G34, L14, L25, M21

Suggested Citation

Hsu, Po-Hsuan and Lü, Yiqing and Wu, Hong and Xuan, Yuhai, Director Job Security and Corporate Innovation (September 1, 2022). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3520524 or http://dx.doi.org/10.2139/ssrn.3520524

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Yiqing Lü

New York University (NYU) - New York University (NYU), Shanghai ( email )

1555 Century Ave
Pudong
Shanghai, Shanghai 200122
China

HOME PAGE: http://www.yiqinglue.com/

Hong Wu

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

Yuhai Xuan (Contact Author)

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

4291 Pereira Drive
Irvine, CA California 92697-3125
United States

HOME PAGE: http://yuhai.merage.uci.edu/

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