Governing Innovation: Director Job Security and Innovation Project Choices

Posted: 22 Jan 2020

See all articles by Po-Hsuan Hsu

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance

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: January 16, 2020

Abstract

In this paper, we examine the influence of directors’ job security on firms’ risk-taking and innovations. Using the staggered enactment of majority voting legislation across different U.S. states as an exogenous threat to directors’ job security, we find an affected firm produces fewer patents, especially exploratory patents, and fewer forward citations after legislative changes. This effect is stronger when directors have fewer outside options and longer career and employment horizons, or when a firm is more actively traded by transient investors. Moreover, firms file fewer patents in and make fewer citations to fields related to directors’ prior working experiences after legislative changes, suggesting that directors who face greater job insecurity compromise their roles in advising firms engaged in risky innovation.

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, Governing Innovation: Director Job Security and Innovation Project Choices (January 16, 2020). Available at SSRN: https://ssrn.com/abstract=3520524

Po-Hsuan Hsu

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

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

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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