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Corporate executives with financial backgrounds: The crowding-out effect on innovation investment and outcomes

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  • Liu, Baohua
  • Zhou, Wei
  • Chan, Kam C.
  • Chen, Yining

Abstract

This study examines the impact of corporate executives with financial backgrounds (FBs) on firm innovation. Our findings suggest that firms that have more executives with FBs engage in less innovation than firms that have fewer executives with FBs. Compared to firms with fewer executives with FBs, firms that have disproportionately more executives with FBs invest in more financial assets, invest in fewer fixed assets, spend less on R&D (innovation input), and experience more severe financial constraints. This phenomenon corroborates the logic of the crowding-out effect, which serves as a transmission mechanism in the negative causal relationship between executives’ FBs and firm innovation. Our findings also suggest a moderating effect in that the negative impact of executives’ FBs on innovation is less pronounced when firms have a stronger corporate governance.

Suggested Citation

  • Liu, Baohua & Zhou, Wei & Chan, Kam C. & Chen, Yining, 2020. "Corporate executives with financial backgrounds: The crowding-out effect on innovation investment and outcomes," Journal of Business Research, Elsevier, vol. 109(C), pages 161-173.
    • Handle: RePEc:eee:jbrese:v:109:y:2020:i:c:p:161-173
    DOI: 10.1016/j.jbusres.2019.11.055
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