We investigate the relationship between executives’ horizons and firms’ innovation efficiency. Motivated by Acharya, Myers, and Rajan’s (2011, JF) theory, we devise a measure of internal governance based on the difference in expected horizons between a CEO and her subordinates. Consistent with our conjecture, we find robust evidence that subordinate managers with longer horizon compared to the CEO can improve firm’s innovation efficiency. Internal governance has a stronger effect on innovation efficiency for firms with elder, generalist CEOs and when the number of subordinates on the board is higher. However, while the presence of powerful CEOs attenuates the effect, overconfident CEOs do not negate the internal governance effect. Our proposed internal governance mechanism seems to be able to address the managerial myopia issue in corporate settings.
Gao, Lei; Jiang, Christine X.; and Mekhaimer, Mohamed, "Count on Your Subordinates: Young Managers and Innovation Efficiency" (2019). Business Faculty/Staff Publications. Paper 89.
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