Who promotes more innovations? Inside versus outside hired CEOs

The decision whether to hire a new CEO from outside the firm or to promote an internal candidate is considered among scholars and practitioners as highly influential for subsequent strategy setting and a firm’s innovativeness. Our empirical investigation shows that internally promoted top managers are associated with significant higher innovative activity compared with their externally hired colleagues. Our findings are consistent with the notion that firm-specific knowledge of inside top managers is relatively more important to facilitate innovative firm activities than experiences from outside the firm. However, we also note that outsiders are often hired for reasons that may not coincide with the objective to promote innovations in first place.