Managerial Characteristics as Drivers of Innovation

Abstract

Plenty of powerful and promising companies have failed in the history of Corporate America. While many factors may have contributed to this outcome, lack of innovation is often one of the factors highlighted. After all, innovation, which can be defined as the successful exploitation of new ideas (Nathan & Lee, 2013), has been found to be a strong predictor of a firm’s future returns. However, what drives the creation of successful corporate innovation is not yet fully understood. On this study, I want to focus on managerial characteristics and how such diversity attributes can drive innovation. Joshi & Jackson (2003) define diversity as “the distribution of personal attributes among interdependent members of a work unit.” The combination of these diversity attributes can generate ideas and fresh perspectives feeding the creativity process which in turn will result in innovation. The diversity attributes at the managerial level are critical as the top management team (TMT) has the ability to define the direction of the firm. The purpose of this study is to assess whether diverse managerial characteristics at the TMT level drives firm innovation. This research question is tested using a sample of S&P 500 firms over the period 2010-2017. Innovation is measured by patent filings and citations. The empirical results show diversity traits such as tenure, culture, education and political affiliation do positively influence innovation. Gender, age and job diversity were found not to be significant.