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The Exploratory Mindset and Corporate Innovation

Published online by Cambridge University Press:  19 October 2020

Zhaozhao He Open the ORCID record for Zhaozhao He [Opens in a new window]  and
David Hirshleifer
Zhaozhao He*
Affiliation:
University of New Hampshire Paul College of Business and Economics
David Hirshleifer
Affiliation:
University of California Irvine Paul Merage School of Business and [email protected]
*
[email protected] (corresponding author)
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Abstract

We propose that chief executive officer (CEO) exploratory mindset (inherent desire to search for novel ideas and long-term orientation) promotes innovation. Firms with CEOs with PhD degrees (PhD CEOs) produce more exploratory patents with greater novelty, generality, and originality. PhD CEOs engage less in managing earnings and stock prices, invest more in research and development (R&D) and alliances, generate higher long-term value of patents, and experience more positive market reactions to R&D alliances. Their firms achieve superior long-run operating performance. They tend to be hired by research-intensive firms with poor financial performance. Evidence from managerial incentive shocks and turnovers suggests that these effects do not derive solely from CEO–firm matching.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 1 , February 2022 , pp. 127 - 169
Copyright
© The Author(s), 2020. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank an anonymous referee, Christopher Anderson, George Bittlingmayer, Robert DeYoung, Jarrad Harford (the editor), Ted Juhl, Anh Nguyen, Ezgi Ottolenghi, Yushui Shi, Jide Wintoki, and conference participants at the 2015 Southern Finance Association Annual Meeting and the 2017 Financial Management Association Annual Meeting for their valuable suggestions and comments. He acknowledges financial support from the award of Outstanding Doctoral Student Paper at the 2015 Southern Finance Association.

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