CEO labor market and R&D investment in high-technology firms: an empirical study on the disciplinary effect of CEO labor market

Abstract

Previous corporate governance research has paid little attention to the role of chief executive officer (CEO) labor markets in controlling CEO behaviors because the CEO labor market has been considered inefficient. With the increasing mobility of top executives across firms, however, the potential of CEO labor markets to serve as an external disciplining force has been growing. In this study, we argue that CEOs will be more pressured to engage in desirable behaviors as the CEO labor market becomes more efficient. Using a longitudinal sample of S&P 1500 firms in high-technology industries in United States from 2011 to 2019, we found that CEOs tend to increase R&D investment as CEO labor market supply increases. We also found that the tendency is greater when external CEO succession is more frequent in the market. Our results demonstrate that CEO labor markets have the potential to function as an effective external governance mechanism.

The crowding-out effect of shareholder value-based CEO compensation on R&D investment in the European context: a new interpretation

“…As Wang et al (2018) underline that the executive compensation incentive may reduce the principal-agent conflict within an organization. As agency theory presumes that CEO incentive pay may mitigate agency problems between CEO and shareholders (see Tosi et al, 2000;Seo et al, 2022). It is emphasized in the extant literature, which is parallel to the present study's assumption, longterm performance-based CEO payment will increase R&D investment (Coles et al, 2008;Seo et al, 2022).…”

“…As agency theory presumes that CEO incentive pay may mitigate agency problems between CEO and shareholders (see Tosi et al, 2000;Seo et al, 2022). It is emphasized in the extant literature, which is parallel to the present study's assumption, longterm performance-based CEO payment will increase R&D investment (Coles et al, 2008;Seo et al, 2022). It is also emphasized that the long-term-oriented decisions may be relevant to the R&D investment (see Makri et al, 2006).…”

“…They find that the effects of CEO duality on innovation are negative, while the effects of female board members on R&D investment are positive for Romanian firms. Seo et al (2022) examine the effects of corporate governance on R&D investment in the USA economy. They find that CEO long-term incentive payment, CEO labor market supply and external CEO succession rate (with the interaction of CEO labor market supply) have a positive effect on R&D investment, while CEO duality and CEO-Top Management Team Relative payment have a negative effect on it.…”

“…They find that the effects of CEO duality on innovation are negative, while the effects of female board members on R&D investment are positive for Romanian firms. Seo et al. (2022) examine the effects of corporate governance on R&D investment in the USA economy.…”

Microfoundations of innovation: A dynamic CEO capabilities perspective

“…Financial and CEO data were acquired using Thomson Reuters' Refinitiv Eikon database. In case neither the database nor a firm's annual report or proxy statement contained CEO-related information, missing CEO data were manually collected on company and university websites, LinkedIn, and Bloomberg (Seo et al, 2022). If more than one individual served as CEO in a specific firm within 1 year, the CEO with the most time in office was selected (Quigley & Hambrick, 2015).…”