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The impact of market competition on the relation between CEO power and firm innovation

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  • Sheikh, Shahbaz

Abstract

This study empirically investigates the effect of market competition on the relation between CEO power and firm innovation by explicitly recognizing the endogeneity of CEO power. Results from instrumental variable (IV-GMM) regressions indicate that powerful CEOs produce more patents and citations relative to other CEOs. However, the relation between CEO power and innovation is driven by competition in product markets, as CEO power has a positive and significant effect on innovation only in high competition markets, and is not related to innovation in low competition markets. Overall, the results suggest that product market competition plays an important role in mitigating agency problems, and forces CEOs to use their power in the best interests of the shareholders.

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  • Sheikh, Shahbaz, 2018. "The impact of market competition on the relation between CEO power and firm innovation," Journal of Multinational Financial Management, Elsevier, vol. 44(C), pages 36-50.
  • Handle: RePEc:eee:mulfin:v:44:y:2018:i:c:p:36-50
    DOI: 10.1016/j.mulfin.2018.01.003
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    Cited by:

    1. Jaehong Lee & Eunsoo Kim, 2020. "The Influence of Corporate Environmental Responsibility on Overinvestment Behavior: Evidence from South Korea," Sustainability, MDPI, Open Access Journal, vol. 12(5), pages 1-20, March.
    2. Li, Yunhe & Liu, Yu & Xie, Feixue, 2019. "Technology directors and firm innovation," Journal of Multinational Financial Management, Elsevier, vol. 50(C), pages 76-88.
    3. Riaqa Mubeen & Dongping Han & Jaffar Abbas & Iftikhar Hussain, 2020. "The Effects of Market Competition, Capital Structure, and CEO Duality on Firm Performance: A Mediation Analysis by Incorporating the GMM Model Technique," Sustainability, MDPI, Open Access Journal, vol. 12(8), pages 1-18, April.
    4. Sheikh, Shahbaz, 2018. "Corporate social responsibility, product market competition, and firm value," Journal of Economics and Business, Elsevier, vol. 98(C), pages 40-55.
    5. Chi, Jing & Liao, Jing & Yang, Jingjing, 2019. "Institutional stock ownership and firm innovation: Evidence from China," Journal of Multinational Financial Management, Elsevier, vol. 50(C), pages 44-57.
    6. Gunasekarage, Abeyratna & Luong, Hoa & Truong, Thanh Tan, 2020. "Growth and market share matrix, CEO power, and firm performance," Pacific-Basin Finance Journal, Elsevier, vol. 59(C).
    7. Suyon Kim & Jaehong Lee, 2020. "Accounting Treatment of R&D for Environmentally Responsible Firms: Evidence from South Korea," Sustainability, MDPI, Open Access Journal, vol. 12(8), pages 1-16, April.
    8. Sheikh, Shahbaz, 2018. "CEO power, product market competition and firm value," Research in International Business and Finance, Elsevier, vol. 46(C), pages 373-386.

    More about this item

    Keywords

    Innovation; Patents; Citations; Power; CEO pay slice;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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