Interesting paper by Emdad Islam and Jason Zein [1] on whether high technology firms led by inventor CEOs with hands-on innovation experience (the Netflix’s Reed Hastings types) have higher corporate innovation output and impact compared to companies led by non-inventor CEOs.

Pinpointing the corporate traits that would predict innovation is tricky. Many spurious correlations may exist and filtering predictive features is challenging. For example, Reeb and Zhao [2] note that from thirty-five previously identified determinants of innovation, relatively few variables provide “material, independent information about patents and citations” and that “managerial characteristics rarely survive the selection process“. One of the variables that provided some degree of independent information about patent activity was CEO centrality.

Now, Islam and Zein claim that “inventor CEOs” have “superior ability to evaluate, select, and execute innovative investment projects related to their own hands-on experience.” To be designated as an “inventor CEO”, CEOs need to be awarded “at least one patent in their own name“.

CEO personal “style” can have a significant impact on corporate policies and performance. One important, yet unexplored aspect of a CEO’s personal background that can influence their style is the extent to which they possess hands-on innovation experience as an inventor. In this study, we examine whether this dimension of a CEO’s personal background impacts upon a firm’s innovation activities. To understand why a CEO’s hands-on inventor experience should matter, we draw upon the learning-by doing literature.

(…)

(…) studies suggest that hands-on experience provides individual agents with unique information advantages in evaluating investment opportunities. Yet, the relationship between Inventor CEOs and corporate innovation is not obvious. While technically adept, Inventor CEOs may not be as capable of marketing or commercializing their firm’s technologies. Further, inventors may have difficulty accepting ideas that lie outside the domain of their specific expertise.

(…)

Our baseline analysis reveals that firms led by Inventor CEOs are associated with a greater volume of registered patents, more highly cited patents, and greater innovation efficiency. They are also more likely to spur ground-breaking or disruptive innovations, shown by their greater propensity to produce patents that are cited in the 99th percentile of the citation distribution within their technology class-year. Not only are these patents more scientifically important, they also possess significantly greater economic value. Inventor-CEO-led firms also tend to make more breakthrough new product announcements, indicating that the patents filed under their tenure also translate into more successful products.

[1] Emdad Islam and Jason Zein, Inventor CEOs, Journal of Financial Economics, (2019), forthcoming

[2] David M. Reeb and Wanli Zhao, Dissecting Innovation, SSRN, May 9, (2018)