Top Management Quality, Corporate Finance, and Corporate Innovation

Abstract

In this paper, we review the theoretical and empirical literature on measuring the top management quality of firms, and its relation to various aspects of corporate financial policies and corporate innovation, and draw policy implications for enhancing corporate innovation. First, we discuss how management quality has been measured in the recent empirical literature. Second, we address theoretical models of the effect of the top management quality of a firm on its corporate financial and investment policies, and on corporate innovation. Third, we consider the recent empirical literature on the relationship between top management quality and the financial and investment policies of a firm, and how these affect the firm’s inputs into innovation, its innovation outputs, and innovation productivity. Fourth, we review the literature on the relationship between a firm’s top management quality, the anti-takeover provisions incorporated into its corporate charter, and corporate innovation. Fifth, we discuss the relationship between venture capital investments in entrepreneurial firms, their top management quality, and innovation by these firms. Sixth, we review the literature on the relationship between top management quality, the going public decisions of entrepreneurial firms, and the innovation outputs from these firms. We conclude with a discussion of the lessons from the theoretical literature and US evidence on corporate innovation for policymakers in various countries in Asia and elsewhere, and draw implications for public policy aimed at enhancing corporate innovation in these countries.