Abstract
We draw on upper-echelons literature recognizing the important role of CEOs in firm strategy, and corporate governance research, to examine the role of CEOs’ political ideologies, in particular their degree of liberalism, on firm innovative behavior. We suggest that firms run by liberal CEOs engage in more exploratory innovation search, and produce more breakthrough innovations, but also more low-quality innovations. Internal and external governance mechanisms such as CEO compensation, board independence, institutional ownership, antitakeover provisions, and competition moderate these relationships. We test our hypotheses on a sample of 411 public firms and use firms’ patenting activities to capture innovative behavior. Our study provides a more nuanced perspective on the role of CEO values and their interplay with governance mechanisms on firm innovative behavior.
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