Bringing in Changes : The Effect of New CEOs on Innovation

This paper examines the effect of new CEOs on subsequent firm performance from the perspective of innovation. We find that new CEOs are associated with significantly greater quantities and qualities of future innovations, measured with the number of patents, citations, patents per research and development dollar, and citations per patent in the subsequent three-year and five-year periods. New internal CEOs are associated with more and better innovation than new external CEOs. We also find that innovation quantity and quality are positively associated with CEO overconfidence, option compensation, and information asymmetries. These empirical results are robust to controlling for potential endogeneity issues and also remain in a sample of firms that experience the sudden deaths of their CEOs