Generalist vs. Specialist CEOs: R&D Investment Sensitivity to Stock Price

• Published in: Finance research letters Vol. 62; p. 105081
• Main Authors: Jeon, Heung-Jae, Jung, Sumi
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.04.2024
• Subjects: General human capital; Investment-price sensitivity; Managerial learning; R&D investment; G30; General human capital; Investment-price sensitivity; Managerial learning; R&D investment; M10; D83
• ISSN: 1544-6123; 1544-6131
• DOI: 10.1016/j.frl.2024.105081

•This study examines the impact of CEOs with general abilities on the utilization of external information in R&D investment decisions.•We find that R&D investment decisions made by generalist CEOs are more responsive to stock price fluctuations compared to those of specialist CEOs.•This effect is more pronounced when stock prices are more likely to incorporate private information, and when firms operate in a single business segment. We investigate the propensity of chief executive officers (CEOs) with general abilities, as opposed to specialized abilities, to utilize stock market insights in their R&D investment decisions. By analyzing data from U.S. public companies from 1993 to 2022, we discover a positive relationship between the CEOs’ general managerial ability and R&D investment-price sensitivity, suggesting an increased reliance on stock price information among generalist CEOs in making investment decisions. We also find that this relationship is even more pronounced when the stock price reflects more private information and when the degree of a firm's business specificity increases. Our findings offer valuable insights into the potential channel that links generalist CEOs and firm innovation.