Founder CEOs and Innovation: Evidence from S&P 500 Firms

Abstract

Using a novel data set on founder CEOs in S&P 500 firms for the period from 1993 to 2003, this paper investigates the relationship between founder CEOs and innovation. While entrepreneurs as individuals have long been considered change agents, it is not clear whether entrepreneurs as managers of large organizations may facilitate organizations’ innovation performance. Our main results show that the existence of a founder CEO is correlated with a 31 percent increase in the citation-weighted patent count before we control for R&D spending and a 23 percent increase in the citation-weighted patent count after we control for R&D spending, suggesting that founder CEOs are more effective and efficient innovators than professional CEOs. As boundary conditions of the relationship, we find that the positive effect of founder CEOs on innovation is stronger in more competitive and innovative industries. Furthermore, our results suggest that founder CEOs are more likely to take their firms in a new technological direction. Finally, we provide evidence that the innovations of founder CEO-managed firms create more financial value than the innovations of professional CEO-managed firms. Our findings are particularly convincing because the results are consistent across various robustness checks that control for potential selection issues and other endogeneity concerns.

Keywords: founder CEOs; innovation; R&D; entrepreneurship; behavioral strategy