Innovation in founder-run firms: evidence from S&P 500

One important element of a firm’s organizational environment that may influence innovation is whether the CEO of the firm is its founder. Popular perception is that the inherent venturous spirit of the founders creates an environment that fosters innovation. This study investigates whether founder-CEOs are more innovative than nonfounder CEOs. Using a sample of S&P 500 firms from 1995-2005 and the NBER patent database for measuring innovation output, the study’s baseline results suggest that founder-CEOs are actually associated with fewer patents (quantity of innovation) and fewer citations (quality of innovations), a finding that is contrary to popular perception. However, to reveal the true picture of the innovativeness of founders, evaluating the effect of innovation output on overall firm valuation is necessary. Thus, the study considers the effect of innovation output on firm valuation and suggests that founder-CEOs add more value by innovation. The market greets the innovation output of founder-run firms more favorably than the innovation output of non-founder-run firms. This value addition holds even after controlling for strategic investments such as R&D. This finding helps to identify a probable channel -innovation that bridges, at least partially, the gap in the literature that shows that there is a ‘founder-premium’.

Grantor dc:publisher

UNSW, Sydney

Year dc:date

2014

Author dc:creator

• Islam, Md Emdadul

• Patent and Citation
• Founder-CEOs
• Innovation
• Tobin's Q

Statement dc:rights

• open access
• CC BY-NC-ND 3.0
• free_to_read

Licence

• https://purl.org/coar/access_right/c_abf2
• https://creativecommons.org/licenses/by-nc-nd/3.0/au/

Language dc:language

EN

Identifier

https://doi.org/10.26190/unsworks/16854

OAI identifier oai:identifier

oai:unsworks.library.unsw.edu.au:1959.4/53540