CEO organizational identification and corporate innovation investment

Abstract

Identity theory in economics reveals that organisational identification motivates managers to take actions that are strongly aligned with firm interests. Nevertheless, organisational identification may also play a role in personal incentives. Leveraging the availability of CEO organisational identification data from the national internal control survey of listed firms in China, we document a positive impact of CEO organisational identification on corporate innovation. We also find that the positive impact is more pronounced for firms whose CEOs own shares, that are followed by more financial analysts, and that have higher institutional ownership. Additional analyses suggest that the interaction between CEO organisational identification and corporate innovation investment significantly enhances firm value. Overall, our study shows that CEO organisational identification is a non‐trivial driver of firm innovation and growth.

Supporter or Supervisor? The Role of Chief Financial Officers in Corporate Innovation

“…(1) CEO organizational identification (CEO_OI) is added as a control variable in the regression model. Previous studies have shown that CEO_OI may affect other executives' organizational identification [75] and corporate innovation [12]. Therefore, the relationship between CFO organizational identification and corporate innovation may be driven by CEO_OI.…”

“…Finally, there have been no significant changes in China's corporate governance guidelines since 2014, especially in terms of executive responsibilities. Therefore, the data still reflect the current situation, and new research results are continuously published by scholars using this data [12,30,[74][75][76]. The company patent information and financial data are from the China Stock Market and Accounting Research (CSMAR) database.…”

“…Corporate innovation has received much scholarly attention in recent years. The CEO's pivotal role in corporate decision-making has led to a large number of studies focusing on the impact of CEO characteristics on corporate innovation [4][5][6][7][8][9][10][11][12], but few studies have focused on CFOs. However, the differences between the roles of CEOs and CFOs result in the proposal that the research conclusions related to CEOs cannot be directly applied to CFOs.…”

“…An increasing amount of research focuses on the influence of management on corporate innovation. For example, empirical studies have found that the professional background and political connections of the CEO [4], self-confidence [5,6], gender [7], founder's identity [8], military experience [9], academic work experience [10], pilot qualifications [11], and organizational identification [12] have a significant impact on corporate innovation. However, these studies have focused on CEOs, rarely on CFOs.…”

The Perspective of Long-Term and Short-Term Incentives on the Business Environment, Executive Incentive Contracts, and Enterprise Innovation

“…They tend to be a competitive and sustainable strategic orientation in decision-making, avoiding the psychology of abandoning innovation due to unwillingness to bear the consequences of risk. Previous scholars, including Flammer and Bansal (2017), Nguyen (2018), and D. Du et al (2022), also concluded that appropriate equity incentives could inhibit the tendency of executives to seek quick success and instant benefit.…”