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Does top management quality promote innovation? Firm-level evidence from China

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  • Zhao, Qifeng
  • Li, Zhen
  • Yu, Yihua

Abstract

The human capital in management teams plays an increasingly important role in firms' governance and policies. We construct a comprehensive index of top management quality using a principal component analysis to empirically prove top management quality's positive impacts on corporate innovation. This study finds that higher-quality management teams tend to invest more in research and development projects and apply for more and higher-quality of patents. These results are consistent after conducting a series of robustness checks. We control for potential endogeneity using a firm fixed-effects model, the instrumental variable approach, and the propensity score-matching method. Three main channels are tested through which higher-quality top management teams will lead to higher innovation: higher tolerance for failure, easing of financial constraints, and more hiring of high-quality inventors. Finally, further analyses reveal that the positive effects of top management quality on innovation are more obvious for high-tech, state-owned, and growing enterprises.

Suggested Citation

  • Zhao, Qifeng & Li, Zhen & Yu, Yihua, 2021. "Does top management quality promote innovation? Firm-level evidence from China," China Economic Review, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:chieco:v:65:y:2021:i:c:s1043951x20301590
    DOI: 10.1016/j.chieco.2020.101562
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    Cited by:

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    2. Chuan Zhang & Lixia Liu, 2022. "Authorized patents and total factor productivity under intensified market competition: Quasi‐natural experimental evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3576-3592, December.
    3. Li, Yafei & Mbanyele, William & Sun, Jinping, 2022. "Managerial R&D hands-on experience, state ownership, and corporate innovation," China Economic Review, Elsevier, vol. 72(C).
    4. Cheng, Yuanyuan & Du, Kerui & Yao, Xin, 2023. "Stringent environmental regulation and inconsistent green innovation behavior: Evidence from air pollution prevention and control action plan in China," Energy Economics, Elsevier, vol. 120(C).
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    6. Yun Song & Hongqu He & Caiyu Yan, 2022. "Impacts of top management team fault‐line on firm's innovation—Financial slack over‐investment and underinvestment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3348-3360, December.

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    More about this item

    Keywords

    Innovation; Management quality; Failure tolerance; Financial constraints;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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