Author(s)

Ruobing Zhao

Corresponding Author

Ruobing Zhao

Abstract

The decision-making of the new CEO plays a vital role in the development of the enterprise in the next few years. The new CEO’s attitude towards innovation investment, conservative or risk-taking, will determine the future core competitiveness of the enterprise to a certain extent. Based on the prospect theory and model derivation, this paper finds that whether the new CEO will invest in innovation depends on the growth of reputation and salary of the new CEO when the innovation is successful, the degree of aversion to losses, and the relative probability of successful innovation both objectively and subjectively. Using a dataset of the listed companies in China from 2009 to 2019, this paper makes an empirical test on the relationship between new CEOs and enterprise innovation investment, and the results show that there is a significant negative correlation between new CEOs and enterprise innovation investment. Further research shows that the degree of new CEO's reluctance to invest in innovation will be affected by personal characteristics such as age or external environment, the preferential policies of the state to encourage innovation. The conclusion of theoretical model derivation and empirical test results show the enterprises how to encourage their new CEOs to actively invest in innovation, which is of great significance to the promotion of enterprise’s sustainable innovation ability.

Keywords

New ceo, Risk preference, Innovation investment, Prospect theory