Managerial Short-Termism and Corporate Innovation Strategies
|Speaker:||Kai Li, University of British Columbia|
|Date:||Tuesday 27 May 2014|
|Location:||Constantine Leventis Teaching Room, Building One|
In this paper we employ a sample of public and private firms to examine the impact of managerial shorttermism associated with public equity markets on innovation strategies. We show that public firms’ patents are less exploratory and more exploitative than private firms’ patents. The results based on propensity score matching, the IPO firms and their matched private (public) control firms, and the instrumental variable approach reinforce the findings from the cross-section. We then identify a number of possible underlying forces behind managerial short-termism: a higher fraction of vested stock and option grants in CEOs’ overall equity incentive portfolios, a higher likelihood of a firm becoming a takeover target due to low valuation, and a greater presence of short-term institutional investors. We conclude that managerial shorttermism associated with public equity markets leads to an innovation strategy that emphasizes short-term success and potentially underinvests in revolutionary technologies.
Here is a link to the full paper: www.dropbox.com/s/rxt1rtwyp790xqi/Gao%20Hsu%20Li_public%20and%20private%20firm%20innovation_20140520.pdf