Managerial long‐termism and corporate innovation: Evidence from China through text mining approaches

Abstract

AbstractAdhering to long‐termism is essential for sustaining and promoting corporate innovation in the face of future uncertainty. In this study, we use machine learning and text analysis methods to construct a proxy variable for managerial long‐termism and explore how managerial long‐termism affects corporate innovation using a sample of 13,117 firm‐year observations from 2010 to 2020 in China. We find managerial long‐termism has a positive effect on corporate innovation, which is mainly achieved by mitigating agency problems. The positive effect of managerial long‐termism on corporate innovation is more pronounced when an enterprise faces stronger economic policy uncertainty and has more slack resources. Additional analysis shows that managerial long‐termism accelerates exploratory innovation and contributes to the high‐quality development of enterprises. Our findings advance research on long‐termism in corporate governance and generate meaningful insights into the antecedents of corporate innovation from the perspective of time preference.