Accelerating Innovation Efficiency through Agile Leadership: The CEO Network Effects in China

Abstract

• Innovation is more efficient when CEO has more outside directorships. • A significant and positive relationship exists between a well-connected CEO and innovation efficiency. • The positive relationship will become non-significant when the number of the CEO's outside directorships is above the yearly median level. • The findings emphasize the contingent value of the CEO's external social capital on agility and digitalization. Digitalization as a business enabler has speeded and scaled innovation in many firms. As the corporate leader, the CEO facilitates strategic agility and enhances network effects to create value. This study uses innovation efficiency as the proxy of digitalization to examine the contribution of the CEO networks to firm-level innovation efficiency in Chinese listed firms. Using 13,516 firm-year observations in Chinese listed high-tech firms between 2007 and 2017, we apply a frontier analysis approach (e.g., DEA and SFA) and measure innovation efficiency based on the scale ratio of innovation output (i.e., patent counts) and input (R&D investment and R&D personnel). First, we find that innovation is more efficient when CEO has more outside directorships. Second, a significant and positive relationship exists between a well-connected CEO and innovation efficiency when the newly appointed CEO has larger networks than the predecessor. Third, the positive relationship between a well-connected CEO and innovation efficiency disappears when the number of outside directorships is above the yearly median level. This empirical study provides evidence for the network effects of a CEO for improving innovation efficiency. The findings emphasize the contingent value of the CEO's external social capital on agility, especially the multiple directorships in a transitional economy.