Do CEO's cultural backgrounds enhance or impede corporate innovation?

Abstract

Prior studies have documented the influences of the cultural values of collectivism and high power distance on creativity and innovation. However, despite the extensive body of literature on how CEOs' prior experiences affect firm behavior, little is known about how executives' cultural backgrounds impact corporate innovation. We use the number of clan genealogies in the hometown cities of CEOs as an exogenous variable to identify executives' cultural backgrounds. Our empirical analyses reveal that firms led by CEOs who were born and raised in areas with strong clan cultures exhibit less corporate innovation than those led by CEOs with weak clan cultural backgrounds. We theorize two mediating mechanisms and demonstrate how these mediators, creativity-oriented corporate culture and the proportion of top managers with working experience in technical areas, influence the relationship between clan culture and corporate innovation. We conduct several tests to confirm the robustness of our results. This study highlight the importance of CEOs' cultural imprinting on firm innovation and demonstrate the mechanisms underlying the influence of China's traditional culture on corporate innovative strategy.