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CEO age and firm innovation: evidence from IT industry in Korea

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Abstract

This paper investigates the relationship between CEO age and firm innovation measured as innovation productivity (i.e., the number of patent applications) and innovation scope (i.e., technological proximity). Using a sample of 8589 firm-years that eliminate differences in characteristics between firms with young CEOs versus old CEOs, listed in the Korean stock markets for the sample period of 2002–2016, we document that a firm’s innovation productivity or innovation scope decreases in CEO age. We also report that younger CEOs in IT firms are more likely to participate in firm innovation than those in non-IT firms. Our main results are robust in Tobit, Poisson, and negative binomial regressions and in specification of CEO-fixed effect models. We also find same results in further analyses considering CEO tenure, firm age, and CEO overconfidence. Taken together, younger CEOs in IT firms may be more motivated to signal their innovativeness to the CEO market to be regarded as outstanding innovators or adventurous innovators, which supports managerial signaling hypothesis for young CEOs.

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Availability of data and material

The patent information we used was searched on the following site: http://www.kipris.or.kr/khome/main.jsp.

Notes

  1. We classify CEOs aged 60 and above as old CEOs since they are known to face horizon problems (Cho and Kim 2017).

  2. We construct our sample by estimating a probit model with a dummy variable indicating to old CEO group as dependent variable.

  3. Our quantifying the effect of CEO age is consistent with the empirical study, such as that of Chang et al. (2015). For instance, the coefficient on CEO age, β, is \(\beta = d\left( {\ln \left( {1 + y} \right)} \right)/d\left( {\ln x} \right) \times \left( {dy/dx} \right)\). Thus, \(dy = \beta \times d\left( {1 + y} \right)/x \times dx\). From the values in Table 1, β =  − 0.299, y = 41.136, x = 53.623, and dx = 6.889, respectively. The dy is − 1.618. This value means that the average patents falls by − 1.618 from mean value, 41.136, when CEO age increases by one standard deviation from its mean value.

  4. We also confirm that the same estimation results are shown for INNO_PROit+2.

  5. In order to investigate the Chaebol-oriented economy of Korea, we also explore the effects of CEO age on firm innovation for Chaebol and non-Chaebol firms. We find that our CEO age-innovation relationships are somewhat weakened. This may be that abundant innovation resources reduce the young CEOs’ incentives to innovate.

  6. We thank anonymous referees for giving us this intuition.

  7. Due to the data limitation in Korea, it is difficult to accurately gauge the timing of exercising stock options for measuring option-based CEO overconfidence. Therefore, we measure our CEO overconfidence variable using the accounting-item-based methods of Schrand and Zechman (2012).

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Funding

This paper was presented at the 30th EBES Conference.

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Authors and Affiliations

  1. College of Business Administration, Chonnam National University, Gwangju, South Korea

    Jeongdae Yim

  2. Protocol Development Team, Samsung Electronics, Hwasung, South Korea

    Minju Kang

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  1. Jeongdae Yim
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Correspondence to Jeongdae Yim.

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Yim, J., Kang, M. CEO age and firm innovation: evidence from IT industry in Korea. Eurasian Bus Rev (2024). https://doi.org/10.1007/s40821-024-00262-x

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