Director Job Security and Corporate Innovation

Po-Hsuan Hsu; Yiqing Lü; Hong Wu; Yuhai Xuan

doi:10.1017/S0022109022001570

Director Job Security and Corporate Innovation

Po-Hsuan Hsu, Yiqing Lü, Hong Wu, Yuhai Xuan^*

^*Corresponding author for this work

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

16 Citations (Scopus)

10 Downloads (CityUHK Scholars)

Abstract

In this article, we show that firms can become conservative in innovation when their directors face job insecurity. We find that after the staggered enactment of majority voting legislation that strengthens shareholders’ power in director elections, firms produce fewer patents, particularly exploratory patents, and fewer forward citations. This effect is stronger for directors facing higher dismissal costs or threats and for firms with greater needs for board expertise and is mitigated by institutional investors’ expertise in innovation. Overall, our results suggest that heightened job insecurity induces director myopia, which leads to a reduction in investment in risky, long-term innovation projects. © The Author(s), 2023.

Original language	English
Pages (from-to)	652-689
Journal	Journal of Financial and Quantitative Analysis
Volume	59
Issue number	2
Online published	16 Jan 2023
DOIs	https://doi.org/10.1017/S0022109022001570
Publication status	Published - Mar 2024
Externally published	Yes

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

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AB - In this article, we show that firms can become conservative in innovation when their directors face job insecurity. We find that after the staggered enactment of majority voting legislation that strengthens shareholders’ power in director elections, firms produce fewer patents, particularly exploratory patents, and fewer forward citations. This effect is stronger for directors facing higher dismissal costs or threats and for firms with greater needs for board expertise and is mitigated by institutional investors’ expertise in innovation. Overall, our results suggest that heightened job insecurity induces director myopia, which leads to a reduction in investment in risky, long-term innovation projects. © The Author(s), 2023.

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JO - Journal of Financial and Quantitative Analysis

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Director Job Security and Corporate Innovation

Abstract

UN SDGs

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