Feeling right at home: Hometown CEOs and firm innovation

• Published in: Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2021-02, Vol.66, p.101815, Article 101815
• Main Authors: Ren, Shenggang, Cheng, Yingmei, Hu, Yucai, Yin, Chao
• Format: Article
• Language: English
• Subjects: CEO hometown identity; Firm innovation; Long-term goals; Risk-taking; Social and place identity
• ISSN: 0929-1199; 1872-6313
• DOI: 10.1016/j.jcorpfin.2020.101815

Extending the theories of social and place identity, we predict that CEO hometown identity has a positive and significant influence on firm innovation. Our empirical evidence, from publicly traded firms in China during 2002–2016, suggests that a firm whose CEO's hometown is in the same province or city as the firm's headquarters tends to invest more in R&D and generate more patent applications. Our results are robust to the firm fixed effects and we use difference-in-differences analysis and instrument variable regressions to mitigate endogeneity concerns. CEOs' hometown identity still has a strong and positive impact on innovation after we control for measures of social capital of CEOs. We identify the mechanisms behind the positive relation between firm innovation and CEO hometown identity: hometown CEOs enjoy more support from the board of directors, they are more willing to take risks, and they are more likely to have long-term visions. •CEO hometown identity has a positive and significant influence on firm innovation.•The difference-in-differences and instrument variable methods are used to mitigate endogeneity concerns.•Hometown CEOs enjoy more support from the directors, and they are more willing to take risks.•We also find that hometown CEOs are more likely to have long-term visions.