How to Foster Radical Innovation in FinTechs? The Roles of Leadership Experience and Regulations

Abstract

Research agrees that exploratory activities (experimentation with new alternatives) lead to radical innovations. Nevertheless, we still lack knowledge of what leads new ventures to pursue exploratory activities. A peculiarity of these ventures is that not only the management but also investors build the leadership that influences strategic actions like exploratory activities. Surprisingly, there is no sufficient empirical evidence if the experience of managers and investors influences the relative exploration orientation. This is of special relevance for financial technology ventures (FinTechs) that are currently striving for radical innovations. Moreover, environmental factors affect the leadership‘s impact on the strategic orientation. Especially for FinTechs, regulatory freedom is a crucial environmental factor that is largely overlooked by empirical research. We use a panel dataset of 1,228 FinTechs from 2013-2019 in eight countries and find that management and investor experience have a positive relationship with the relative exploration orientation. Regulatory freedom positively moderates the relationship between management experience and the relative exploration orientation. We add to theory and research on technology and innovation by introducing new antecedents of relative exploration orientation, expanding upper echelons theory research to investors, and investigating the moderating role of regulatory freedom in new ventures’ entrepreneurial behavior.