Do General Managerial Skills Spur Innovation?

We show that firms with chief executive officers (CEOs) who gain general managerial skills over their lifetime of work experience produce more patents. We address the potential endogenous CEO–firm matching bias using firm–CEO fixed effects and variation in the enforceability of noncompete agreements...

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Bibliographic Details
Published in:Management science 2019-02, Vol.65 (2), p.459-476
Main Authors: Custódio, Cláudia, Ferreira, Miguel A., Matos, Pedro
Format: Article
Language:English
Subjects:
Analysis
Bias
Chief executive officers
Chief executives
Endogenous
Executives
general human capital
innovation
Innovations
Labor market
Management
Management science
Management training
Managerial skills
Organizational change
R&D
risk taking
Tolerance
Vocational guidance
Work experience
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Summary:We show that firms with chief executive officers (CEOs) who gain general managerial skills over their lifetime of work experience produce more patents. We address the potential endogenous CEO–firm matching bias using firm–CEO fixed effects and variation in the enforceability of noncompete agreements across states and over time during the CEO’s career. Our findings suggest that generalist CEOs spur innovation because they acquire knowledge beyond the firm’s current technological domain, and they have skills that can be applied elsewhere should innovation projects fail. We conclude that an efficient labor market for executives can promote innovation by providing a mechanism of tolerance for failure. The Internet appendix is available at https://doi.org/10.1287/mnsc.2017.2828 . This paper was accepted by Gustavo Manso, finance.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.2017.2828