Stephen Glaeser, Kenan-Flagler Business School, University of North Carolina
Abstract: I examine how investing in innovation affects CEO termination. Theory argues that firms investing in innovation will reduce their propensity to terminate their CEOs to encourage risk taking and long-term thinking. Consistent with these arguments, I find that firms affected by the plausibly exogenous passage of research and development tax credits invest more in innovation, produce more innovative output, and decrease their propensity to terminate their CEO. Firms appear to commit ex ante to reduced termination by decreasing their board independence. I also find evidence that CEO termination decreases more when innovative projects are longer-horizon, but no evidence that CEO termination decreases more when innovative projects are riskier.