Do Outside CEOs Change Firm Strategy More (or Less) Than Inside CEOs? The Case of Tech Redeployment

Abstract

Do outside CEOs change firm strategy more (or less) than inside CEOs? This study aims to investigate how and under what conditions outside versus inside CEOs impact innovative strategic change. We begin by observing the fact that there is a commonly held belief in both popular press and research that outside CEOs act as change agents and drive new strategies in firms. Yet, the literature does not offer clear empirical results to support this belief. To close this gap, we compared the change in innovation direction observed in firms lead by outside CEOs versus inside CEOs. We measured the change in R&D direction by calculating the angle between vectors representing the yearly patent portfolio in the technology space. This measure allows us to separate the amount of innovation from the innovation direction. Results from panel data on publicly traded firms in the United States from 1992 to 2017 suggest that outside CEOs are associated with fewer changes in firms’ R&D strategic orientations than inside CEOs. These results show that strategic decision-making is context-specific and that it takes some time for outside CEOs to converge to inside CEOs’ levels of innovative strategic change.