Skip to main content Accessibility help
Hostname: page-component-79b67bcb76-c5xhk Total loading time: 0.206 Render date: 2021-05-16T02:36:53.929Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": false, "newCiteModal": false, "newCitedByModal": true, "newEcommerce": true }

The Exploratory Mindset and Corporate Innovation

Published online by Cambridge University Press:  19 October 2020

Zhaozhao He
University of New Hampshire Paul College of Business and Economics
David Hirshleifer
University of California Irvine Paul Merage School of Business and NBER


We propose that chief executive officer (CEO) exploratory mindset (inherent desire to search for novel ideas and long-term orientation) promotes innovation. Firms with CEOs with PhD degrees (PhD CEOs) produce more exploratory patents with greater novelty, generality, and originality. PhD CEOs engage less in managing earnings and stock prices, invest more in research and development (R&D) and alliances, generate higher long-term value of patents, and experience more positive market reactions to R&D alliances. Their firms achieve superior long-run operating performance. They tend to be hired by research-intensive firms with poor financial performance. Evidence from managerial incentive shocks and turnovers suggests that these effects do not derive solely from CEO–firm matching.

Research Article
© The Author(s), 2020. Published by Cambridge University Press on behalf of Michael G. Foster School of Business, University of Washington

Access options

Get access to the full version of this content by using one of the access options below.


We thank an anonymous referee, Christopher Anderson, George Bittlingmayer, Robert DeYoung, Jarrad Harford (the editor), Ted Juhl, Anh Nguyen, Ezgi Ottolenghi, Yushui Shi, Jide Wintoki, and conference participants at the 2015 Southern Finance Association Annual Meeting and the 2017 Financial Management Association Annual Meeting for their valuable suggestions and comments. He acknowledges financial support from the award of Outstanding Doctoral Student Paper at the 2015 Southern Finance Association.


Aghion, P.; Van Reenen, J.; and Zingales, L.. “Innovation and Institutional Ownership.” American Economic Review, 103 (2013), 277304.CrossRefGoogle Scholar
Atanassov, J.Do Hostile Takeovers Stifle Innovation? Evidence from Antitakeover Legislation and Corporate Patenting.” Journal of Finance, 68 (2013), 10971131.CrossRefGoogle Scholar
Balsmeier, B.; Fleming, L.; and Manso, G.. “Independent Boards and Innovation.” Journal of Financial Economics, 123 (2017), 536557.CrossRefGoogle Scholar
Barker, V. L. III, and Mueller, G. C.. “CEO Characteristics and Firm R&D Spending.” Management Science, 48 (2002), 782801.CrossRefGoogle Scholar
Benartzi, S., and Thaler, R. H.. “Myopic Loss Aversion and the Equity Premium Puzzle.” Quarterly Journal of Economics, 110 (1995), 7392.CrossRefGoogle Scholar
Bertrand, M., and Mullainathan, S.. “Enjoying the Quiet Life? Corporate Governance and Managerial Preferences.” Journal of Political Economy, 111 (2003), 10431075.CrossRefGoogle Scholar
Bertrand, M., and Schoar, A.. “Managing with Style: The Effect of Managers on Firm Policies.” Quarterly Journal of Economics, 118 (2003), 11691208.CrossRefGoogle Scholar
Bhagat, S.; Bolton, B.; and Subramanian, A.. “CEO Education, CEO Turnover, and Firm Performance.” Working Paper, University of Colorado–Boulder (2010).CrossRefGoogle Scholar
Bolton, P., and Harris, C.. “Strategic Experimentation.” Econometrica, 67 (1999), 349374.CrossRefGoogle Scholar
Bushee, B. J.The Influence of Institutional Investors on Myopic R&D Investment Behavior.” Accounting Review, 73 (1998), 305333.Google Scholar
Bushee, B. J.Do Institutional Investors Prefer Near-Term Earnings over Long-Run Value?Contemporary Accounting Research, 18 (2001), 207246.CrossRefGoogle Scholar
Camilleri, A. R., and Newell, B. R.. “The Long and Short of It: Closing the Description-Experience ‘Gap’ by Taking the Long-Run View.” Cognition, 126 (2013), 5471.CrossRefGoogle Scholar
Campbell, T. C.; Gallmeyer, M.; Johnson, S. A.; Rutherford, J.; and Stanley, B. W.. “CEO Optimism and Forced Turnover.” Journal of Financial Economics, 101 (2011), 695712.CrossRefGoogle Scholar
Chaudhuri, R.; Ivkovich, Z.; Pollet, J. M.; and Trzcinka, C.. “A Tangled Tale of Training and Talent: PhDs in Institutional Money Management.” Working Paper, available at (2017).Google Scholar
Cohen, L.; Frazzini, A.; and Malloy, C.. “The Small World of Investing: Board Connections and Mutual Fund Returns.” Journal of Political Economy, 116 (2008), 951979.CrossRefGoogle Scholar
Coles, J. L.; Daniel, N. D.; and Naveen, L.. “Managerial Incentives and Risk-Taking.” Journal of Financial Economics, 79 (2006), 431468.CrossRefGoogle Scholar
Core, J., and Guay, W.. “Estimating the Value of Employee Stock Option Portfolios and Their Sensitivities to Price and Volatility.” Journal of Accounting Research, 40 (2002), 613630.CrossRefGoogle Scholar
Cornaggia, J.; Mao, Y.; Tian, X.; and Wolfe, B.. “Does Banking Competition Affect Innovation?Journal of Financial Economics, 115 (2015), 189209.CrossRefGoogle Scholar
Cremers, K. M., and Grinstein, Y.. “Does the Market for CEO Talent Explain Controversial CEO Pay Practices?Review of Finance, 18 (2014), 921960.CrossRefGoogle Scholar
Cronqvist, H.; Makhija, A. K.; and Yonker, S. E.. “Behavioral Consistency in Corporate Finance: CEO Personal and Corporate Leverage.” Journal of Financial Economics, 103 (2012), 2040.CrossRefGoogle Scholar
Custódio, C.; Ferreira, M. A.; and Matos, P.. “Generalists versus Specialists: Lifetime Work Experience and Chief Executive Officer Pay.” Journal of Financial Economics, 108 (2013), 471492.CrossRefGoogle Scholar
Custódio, C.; Ferreira, M. A.; and Matos, P.. “Do General Managerial Skills Spur Innovation?Management Science, 65 (2017), 459476.CrossRefGoogle Scholar
Custódio, C., and Metzger, D.. “Financial Expert CEOs: CEO’s Work Experience and Firm’s Financial Policies.” Journal of Financial Economics, 114 (2014), 125154.CrossRefGoogle Scholar
Daellenbach, U. S.; McCarthy, A. M.; and Schoenecker, T. S.. “Commitment to Innovation: The Impact of Top Management Team Characteristics.” R&D Management, 29 (1999), 199208.Google Scholar
Dong, M.; Hirshleifer, D. A.; and Teoh, S. H.. “Misvaluation and Corporate Inventiveness.” NBER Working Paper 24142 (2020).Google Scholar
Ederer, F., and Manso, G.. “Is Pay for Performance Detrimental to Innovation?Management Science, 59 (2013), 14961513.CrossRefGoogle Scholar
Eisfeldt, A. L., and Kuhnen, C. M.. “CEO Turnover in a Competitive Assignment Framework.” Journal of Financial Economics, 109 (2013), 351372.CrossRefGoogle Scholar
Epstein, S.The Stability of Behavior: On Predicting Most of the People Much of the Time.” Journal of Personality and Social Psychology, 37 (1979), 10971126.CrossRefGoogle Scholar
Falato, A.; Li, D.; and Milbourn, T.. “Which Skills Matter in the Market for CEOs? Evidence from Pay for CEO Credentials.” Management Science, 61 (2015), 28452869.CrossRefGoogle Scholar
Fang, V. W.; Tian, X.; and Tice, S.. “Does Stock Liquidity Enhance or Impede Firm Innovation?Journal of Finance, 69 (2014), 20852125.CrossRefGoogle Scholar
Fee, C. E.; Hadlock, C. J.; and Pierce, J. R.. “Managers With and Without Style: Evidence Using Exogenous Variation.” Review of Financial Studies, 26 (2013), 567601.CrossRefGoogle Scholar
Ferreira, D.; Manso, G.; and Silva, A. C.. “Incentives To Innovate and the Decision To Go Public or Private.” Review of Financial Studies, 27 (2012), 256300.CrossRefGoogle Scholar
Gabaix, X., and Landier, A.. “Why Has CEO Pay Increased So Much?Quarterly Journal of Economics, 123 (2008), 49100.CrossRefGoogle Scholar
Gomes-Casseres, B.; Hagedoorn, J.; and Jaffe, A. B.. “Do Alliances Promote Knowledge Flows?Journal of Financial Economics, 80 (2006), 533.CrossRefGoogle Scholar
Gottesman, A. A., and Morey, M. R.. “Does a Better Education Make for Better Managers? An Empirical Examination of CEO Educational Quality and Firm Performance.” Pace University Finance Research Paper (2006).CrossRefGoogle Scholar
Graham, J. R.; Harvey, C. R.; and Puri, M.. “Managerial Attitudes and Corporate Actions.” Journal of Financial Economics, 109 (2013), 103121.CrossRefGoogle Scholar
Graham, J. R.; Harvey, C. R.; and Rajgopal, S.. “The Economic Implications of Corporate Financial Reporting.” Journal of Accounting and Economics, 40 (2005), 373.CrossRefGoogle Scholar
Hall, B. H.; Jaffe, A. B.; and Trajtenberg, M.. “The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools.” NBER Working Paper 8498 (2001).CrossRefGoogle Scholar
Hall, B. H.; Jaffe, A.; and Trajtenberg, M.. “Market Value and Patent Citations.” RAND Journal of Economics, 36 (2005), 1638.Google Scholar
Hambrick, D. C., and Mason, P. A.. “Upper Echelons: The Organization as a Reflection of Its Top Managers.” Academy of Management Review, 9 (1984), 193206.CrossRefGoogle Scholar
Hamel, G.Competition for Competence and Inter-Partner Learning within International Strategic Alliances.” Strategic Management Journal, 12 (1991), 83103.CrossRefGoogle Scholar
He, J. J., and Tian, X.. “The Dark Side of Analyst Coverage: The Case of Innovation.” Journal of Financial Economics, 109 (2013), 856878.CrossRefGoogle Scholar
Hertwig, R.Decisions from Experience.” In Wiley Blackwell Handbook of Judgment and Decision Making, G. Keren and G. Wu, eds. Oxford, UK: Blackwell (2015), 239267.CrossRefGoogle Scholar
Hertwig, R.; Barron, G.; Weber, E. U.; and Erev, I.. “Decisions from Experience and the Effect of Rare Events in Risky Choice.” Psychological Science, 15 (2004), 534539.CrossRefGoogle ScholarPubMed
Hirshleifer, D.; Hsu, P. H.; and Li, D.. “Innovative Efficiency and Stock Returns.” Journal of Financial Economics, 107 (2013), 632654.CrossRefGoogle Scholar
Hirshleifer, D.; Low, A.; and Teoh, S. H.. “Are Overconfident CEOs Better Innovators?Journal of Finance, 67 (2012), 14571498.CrossRefGoogle Scholar
Holmstrom, B., and Costa, J. R. I.. “Managerial Incentives and Capital Management.” Quarterly Journal of Economics, 101 (1986), 835860.CrossRefGoogle Scholar
Islam, E., and Zein, J.. “Inventor CEOs.” Journal of Financial Economics, 135 (2020), 505527.CrossRefGoogle Scholar
Jalbert, T.; Rao, R.; and Jalbert, M.. “Does School Matter? An Empirical Analysis of CEO Education, Compensation, and Firm Performance.” International Business & Economics Research Journal, 1 (2002), 8398.Google Scholar
Jones, J. J.Earnings Management during Import Relief Investigations.” Journal of Accounting Research, 29 (1991), 193228.CrossRefGoogle Scholar
Karpoff, J. M., and Wittry, M. D.. “Institutional and Legal Context in Natural Experiments: The Case of State Antitakeover Laws.” Journal of Finance, 73 (2018), 657714.CrossRefGoogle Scholar
Kogan, L.; Papanikolaou, D.; Seru, A.; and Stoffman, N.. “Technological Innovation, Resource Allocation, and Growth.” Quarterly Journal of Economics, 132 (2017), 665712.CrossRefGoogle Scholar
Kothari, S. P.; Leone, A. J.; and Wasley, C. E.. “Performance Matched Discretionary Accrual Measures.” Journal of Accounting and Economics, 39 (2005), 163197.CrossRefGoogle Scholar
Laibson, D.Golden Eggs and Hyperbolic Discounting.” Quarterly Journal of Economics, 112 (1997), 443478.CrossRefGoogle Scholar
Lerner, J., and Wulf, J.. “Innovation and Incentives: Evidence from Corporate R&D.” Review of Economics and Statistics, 89 (2007), 634644.CrossRefGoogle Scholar
Li, G. C.; Lai, R.; D’Amour, A.; Doolin, D. M.; Sun, Y.; Torvik, V. I.; Yu, A. Z..; and Fleming, L.. “Disambiguation and Co-Authorship Networks of the US Patent Inventor Database (1975–2010).” Research Policy, 43 (2014), 941955.CrossRefGoogle Scholar
Li, K.; Qiu, J.; and Wang, J.. “Technology Conglomeration, Strategic Alliances, and Corporate Innovation.” Management Science, 65 (2019), 50655090.CrossRefGoogle Scholar
Manso, G.Motivating Innovation.” Journal of Finance, 66 (2011), 18231860.CrossRefGoogle Scholar
Mody, A.Learning through Alliances.” Journal of Economic Behavior & Organization, 20 (1993), 151170.CrossRefGoogle Scholar
Narayanan, M. P.Managerial Incentives for Short-Term Results.” Journal of Finance, 40 (1985), 14691484.CrossRefGoogle Scholar
Parrino, R.CEO Turnover and Outside Succession A Cross-Sectional Analysis.” Journal of Financial Economics, 46 (1997), 165197.CrossRefGoogle Scholar
Powell, W. W.; Koput, K. W.; and Smith-Doerr, L.. “Interorganizational Collaboration and the Locus of Innovation: Networks of Learning in Biotechnology.” Administrative Science Quarterly, 41 (1996), 116145.CrossRefGoogle Scholar
Roychowdhury, S.Earnings Management through Real Activities Manipulation.” Journal of Accounting and Economics, 42 (2006), 335370.CrossRefGoogle Scholar
Ryan, R. M., and Deci, E. L.. “Self-Determination Theory and the Facilitation of Intrinsic Motivation, Social Development, and Well-Being.” American Psychologist, 55 (2000), 6878.CrossRefGoogle ScholarPubMed
Schoar, A., and Zuo, L.. “Shaped by Booms and Busts: How the Economy Impacts CEO Careers and Management Styles.” Review of Financial Studies, 30 (2017), 14251456.CrossRefGoogle Scholar
Seru, A.Firm Boundaries Matter: Evidence from Conglomerates and R&D Activity.” Journal of Financial Economics, 111 (2014), 381405.CrossRefGoogle Scholar
Stein, J. C.Takeover Threats and Managerial Myopia.” Journal of Political Economy, 96 (1988), 6180.CrossRefGoogle Scholar
Stein, J. C.Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics, 104 (1989), 655669.CrossRefGoogle Scholar
Sunder, J.; Sunder, S. V.; and Zhang, J.. “Pilot CEOs and Corporate Innovation.” Journal of Financial Economics, 123 (2017), 209224.CrossRefGoogle Scholar
Thaler, R. H.; Tversky, A.; Kahneman, D.; and Schwartz, A.. “The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test.” Quarterly Journal of Economics, 112 (1997), 647661.CrossRefGoogle Scholar
Trajtenberg, M.A Penny for Your Quotes: Patent Citations and the Value of Innovations.” RAND Journal of Economics, 21 (1990), 172187.CrossRefGoogle Scholar
Trajtenberg, M.; Henderson, R.; and Jaffe, A.. “University versus Corporate Patents: A Window on the Basicness of Invention.” Economics of Innovation and New Technology, 5 (1997), 1950.CrossRefGoogle Scholar
Wulff, D. U.; Hills, T. T.; and Hertwig, R.. “How Short- and Long-Run Aspirations Impact Search and Choice in Decisions from Experience.” Cognition, 144 (2015), 2937.CrossRefGoogle Scholar
Yonker, S. E.Do Managers Give Hometown Labor an Edge?Review of Financial Studies, 30 (2017), 35813604.CrossRefGoogle Scholar
Supplementary material: PDF

He and Hirshleifer supplementary material

Internet Appendix
Download He and Hirshleifer supplementary material(PDF)
PDF 551 KB

Send article to Kindle

To send this article to your Kindle, first ensure is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the or variations. ‘’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

The Exploratory Mindset and Corporate Innovation
Available formats

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

The Exploratory Mindset and Corporate Innovation
Available formats

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

The Exploratory Mindset and Corporate Innovation
Available formats

Reply to: Submit a response

Your details

Conflicting interests

Do you have any conflicting interests? *