Corporate Governance Indicators and Innovation in the Chinese Market

Abstract

The importance of innovation as an indispensable driving force for the development of a quality economy, for the sustainability of national economies and for the support of enterprises in breaking through development bottlenecks cannot be overstated. Innovation is a key growth strategy for all businesses. It is centered on the chief executive officer (CEO) and is directly related to the cognitive level and decision-making preferences of executives. Based on the principal-agent theory and Upper Echelons Theory, this paper constructs a model to evaluate the impact of CEOs on corporate innovation using a sample of Chinese listed companies from 2008 to 2022. Based on China's political and economic system, this paper selects six relevant characteristics of CEOs, including gender, age, educational background, tenure, compensation and political affiliation to decide whether the CEO is suitable for the firm. At the same time, this paper also measures corporate innovation standards by the number of patents filed by the company, and thus finds that the CEO index has a positive and significant impact on corporate innovation. In addition, in order to address the endogeneity issue, the paper also applies a series of robustness tests, including alternative measures of firm innovation and alternative models (Poisson models), and finds that the results are consistent with the main regression results. Finally, the paper provides empirical evidence as a means of demonstrating the key driving role played by CEOs in corporate innovation. The implications of the above findings for corporate governance, including board shareholders and policymakers, are clear.