Zhaozhao He and David Hirshleifer
We propose that CEO exploratory mindset – inherent desire to search for novel ideas and long-term orientation – promotes innovation. Firms with PhD CEOs produce more exploratory patents with greater novelty, generality, and originality. PhD CEOs engage less in managing earnings and stock prices, invest more in R&D and alliances, generate higher long-term value of patents, and experience more positive market reactions to R&D alliances. Their firms achieve superior long-run operating performance. They tend to be hired by research-intensive firms with poor financial performance. Evidence from managerial incentive shocks and turnovers suggests that these effects do not derive solely from CEO-firm matching.