Investing in Innovation and CEO Termination

Stephen Glaeser, Accounting, The Wharton School

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.

Read the full working paper here (PDF).

Michelle Eckert is Marketing and Communications Coordinator for the Mack Institute, where she works to engage students, researchers, and corporate partners in opportunities for collaboration. Michelle received her B.A. in Art from Valparaiso University in 2007. Her background includes two AmeriCorps terms of service working to teach mathematics, computer literacy, and job readiness skills to out-of-school youth in Philadelphia, focusing particularly on promoting access to post-secondary education.