Affiliation:
1. School of Accounting and Finance The Hong Kong Polytechnic University Kowloon Hong Kong
2. College of Business Korea Advanced Institute of Science and Technology (KAIST) Seoul Korea
3. Department of Accounting and Finance Strathclyde Business School, University of Strathclyde Glasgow UK
Abstract
AbstractThis paper examines how the cultural heritage of chief executive officers (CEOs) in US firms affects research and development (R&D) investment. Utilizing economically significant and unexpected R&D‐increasing events, we examine how six dimensions of CEO cultural heritage—individualism, power distance, masculinity, uncertainty avoidance, long‐term orientation, and indulgence—influence it. We find that CEOs with a high–power distance heritage are more likely to increase R&D. We confirm that this effect of CEO power distance is robust to other cultural effects, the model specification, and endogeneity issues. We conjecture that CEOs with a high–power distance heritage are more likely to increase R&D expenditures because they use their power to pursue personal objectives. Consistent with our hypothesis, we find that R&D increases made by CEOs with a high–power distance culture generate significantly lower benefits in the future, reflecting the inefficiency of these R&D investment decisions.
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