Effects of CEO duality and tenure on innovation

Abstract

PurposeAs the primary decision makers, chief executive officers (CEOs) play pivotal roles in firm innovation. However, little is known regarding how CEOs influence the exploitation and exploration paradox. To advance theory and research, the purpose of this paper is to investigate the joint effects of CEO tenure and CEO–chair duality on a firm’s shifting emphasis between exploitative and exploratory innovation.Design/methodology/approachThis paper takes the approach of a longitudinal sample of 81 US pharmaceutical firms.FindingsAs CEOs’ tenure advance, their firms’ percentage of exploitative innovation increases. Furthermore, non-duality (separation of board chair and CEO) further strengthens the positive relationship between CEO tenure and the percentage of exploitative innovation.Research limitations/implicationsThis study integrates upper echelons theory and behavioral agency theory to juxtapose the effects of CEOs on technological innovation. This study extends knowledge of strategic leadership and innovation by showing that CEOs influence the balance between exploitative and exploratory innovation. Furthermore, this study also contributes to the corporate governance literature by demonstrating that monitoring vigilance could inhibit capable CEOs from pursuing more exploratory innovation.Practical implicationsBoards of directors should allow CEOs to have greater discretion over innovation, and vigilant monitoring and control may force CEOs to focus less on exploration.Originality/valueThis is one of the few studies that explicitly investigate how CEO influences a firm’s emphasis on exploitative innovation and exploratory innovation.