CEO Tenure and Innovativeness
The influence of CEO tenure on the innovativeness of SMEs in the pharmaceutical industry
By: Alexander van ‘t Hof Student number: s1800442
June 24th, 2013
University of Groningen First supervisor: F. Noseleit Second supervisor: P.M.M. de Faria
Abstract
Building upon the upper echelon theory, which states that firms reflect the characteristics of their top executive management, this paper analyses theimpact of CEO tenure on the innovativeness of firms. In differentiating between positional- and firm tenure, while usingseveral indicators for innovativeness, this paper tries to explain the ambiguous relationship between top executive tenure and the innovativeness of a firm. Based upon the concepts of CSQ, risk-taking propensity, and the ability to identify and implement novel/unique ideas, several hypotheses are constructed and tested on a sample of 54 pharmaceutical manufacturing SMEs based in the United States. In coherence with current literature, increasing CEO tenure is found to negatively impact a firm’s commitment to innovation. It does however positively impact the innovative output of firms. There is an inverted u-shape relationship between positional tenure and the tendency of firms to engage in radical innovations, implying that a positional tenure up until around 8 years seems to positively influence the tendency of firms to engage in radical innovations. A u-shaped relationship exists between firm tenure and the successfulness of innovations, implying that in order for firms to act efficiently innovative, long firm tenure seems to be a positive characteristic for CEOs.
Keywords: Tenure, CEO, Commitment to Innovation, Innovative output, Patents, Radical vs. Incremental innovation.
1 Introduction
In the current dynamic business environment, it seems to be common knowledge that a firm´s ability to innovate is of vital importance for its survival (e.g. Brown &Eisenhardt, 1995). Managing innovation within a firm is often complicated and thus requires not only resources such as information, knowledge and financial capital (Nohria&Gulati, 1996), but also talented and supportive managing personnel (e.g. Burgelman& Sayles, 1986). Effective strategic leadership can help the performance of a firm whilst competing in this dynamic environment of the 21th century (Ireland &Hitt, 1999). In optimizing the performance of a firm, top executives have a critical role in identifying and managing business opportunities, consequently their role affects the innovation processes of firms(Finkelstein &Hambrick, 1996).
organizational outcomes, such as innovative output, can be (partially) predicted by the characteristics of its top management team (Hambrick& Mason, 1984).A lot of research has already been conducted on the influences of top executive characteristics on the innovativeness of a company, e.g. (Kitchell, 1997) (Daellenbach, McCarthy &Schoenecker, 1999) (Barker & Mueller, 2002). Several demographic characteristics such as age (Barker & Mueller, 2002), level and type of education (Papadakis&Bourantas, 1998), and level of stock ownership (Barker & Mueller, 2002) (Mezghanni, 2010) have been shown to explain significant percentages of variance in the innovativeness of a firm. Thus, strategic decision makers could, based on a demographic profile of e.g. the Chief Executive Officer (CEO) of a competing firm, make a prediction about the future innovative behaviour of this competitor. In addition to this,decision makers could also choose a CEO for their own business whose demographic characteristics fit well with the objectives of their firm.
The literature is reasonably unambiguous when it comes to the influence of most of the demographic characteristics of top executives on the innovativeness of a firm. Age for example is most of the times significantly negatively correlated with innovative output (Barker & Mueller, 2002), while a high level of education (Camelo et al., 2010) and/or a technical background (Datta& Guthrie, 1994) (Daellenbach, McCarthy &Schoenecker, 1999) is mostly positively correlated with the innovativeness of the firm. Another top executive characteristic which has been researched quite extensively is tenure. Tenure of top executives has been shown, theoretically and empirically, to have an effect on the innovativeness of the firm. The literature however, is ambiguous about the precise influence of top executive tenure on the innovativeness of a firm. Multiple studies have found a positive relationship between top executive tenure and their commitment to innovation (Papadakis&Bourantas, 1998) (Sanyal&Bulan, 2010), while other studies come up with a negative correlation between these two variables(Hambrick&Geletkanycz, 1993)(Finkelstein &Hambrick, 1996).
Based on ideas such as; risk-taking propensity and commitment to status quo (CSQ), researchers often hypothesize top executive tenure to have either a positive or a negative impact on the innovativeness of a firm. Many however, find no significant proof for their hypotheses, and conclude their paper with an insignificant correlation between these two variables (Datta& Guthrie, 1994) (Schoenecker et. al, 1995) (Daellenbach, McCarthy &Schoenecker, 1999) (Barker & Mueller, 2002).
incremental innovations. This differentiation between radical and incremental innovation might be what needs to be measured to explain the true influence of top executive tenure on the innovativeness of a firm, the reasoning behind this assumption will be explained further on in this paper.
In order to prevent that differences in tenure of the members of the top management team (TMT) cancel each other out when it comes to decisions regarding innovation (Daellenbach, McCarthy &Schoenecker, 1999), this paper will only focus on the tenure of the CEO.
To shed more light on the vague relationship between CEO tenure and the innovativeness of a firm, this paper will differentiate between several types of tenure i.e. firm tenure and positional tenure. Responding to Hoffman &Hegarty’s (1993) and Elenkov’s (2005) advice to differentiate clearly between different types of innovation, this study will disregard organizational/process innovations and only focus on product innovations. Furthermore, this paper will differentiate between the CEOs commitment to innovation by measuring R&D expenses, and the actual innovative output by analysing the firm’s patent applications. Firstly, these patent applications will be used to determine how successful the innovative output of the firm actually is, i.e. by looking at the percentage of granted patent applications. Secondly, these patent applications will be analysed in depth to identify to what extend the company is engaging in incremental or radical innovations. In examining these relations across and within firms, this paper will help to explain the ambiguity, which currently exists in the literature, around the influence of top executive tenure on the innovativeness of a firm
2 Theory and Hypotheses
2.1 CEO tenure
As mentioned before, the influence of tenure of executive managers, from a theoretical view, on the innovativeness of a firm is ambiguous in current literature.
This relationship seems to be moderated by three behavioural concepts in particular; CEOs commitment to status quo (CSQ), CEOs risk-taking propensity, and the ability of CEOs to identify and implement novel/unique ideas. The followingsection will firstly explain these concepts, and then link them to different indicators of a firm’s innovativeness in order to create testable hypotheses.
Furthermore, due to their high commitment in both tangible parts of the firm as well as intangible parts; e.g. communities, social circles, long-tenured CEOs have more to lose than to gain by taking unnecessary risks (Coffee, 1988).
Risk-taking propensity is an individual’s tendency to take or avoid risks (Brockhaus, 1980) (Sitkin&Weingart, 1995).From the literature it is evident that tenure influences in some ways the willingness of CEOs to take risks (Finkelstein &Hambrick, 1990) (Wiersema, 1992) (Simsek, 2007). The precise effect of tenure on risk-taking propensity however is ambiguous. Simsek (2007) found a positive effect of long tenure on the CEOs willingness to take risk, while Finkelstein &Hambrick (1990) and Wiersema (1992) claim long tenure of CEOs to have a negative impact on their risk-taking propensity. A positive influence of tenure on risk-taking propensity can be derived from the fact that longer-tenured CEOs have more industry experience and are more used to taking risks (Simsek, 2007). In addition to this they have more slack within the organization; hence their organizational reputation can handle more risks than that of shorter-tenured CEOs. Negative influences of tenure on risk-taking propensity are mostly related to the above explained concept of CSQ, where more tenured CEOs are so deeply invested in the firm that they are less willing to take risks. In addition to this, Barker &Mueller (2002) state that long-tenured CEOs are more looking for stability and efficiency, a view that is supported by Dechow and Sloan (1991) who found that CEOs often reduce R&D spending in their final years.
The ability to identify and implement novel/unique ideas moderates the influence of tenure on the innovativeness of a firm. Since long-tenured CEOs have been in the same industry for a longer period they have “a limited search of alternatives” (Pfeffer, 1983) and generate a smaller set of novel or innovative ideas when faced with new situations (Helmich, 1977) (Katz, 1982) (Bantel& Jackson, 1989) (Hambrick, 1993). In addition to this Miller (1991) states that long-tenured CEOs may be reluctant to make the necessary investments needed for change since they lose touch with the environment of their firm. The contrast is claimed by Hayes & Abernathy (1980) who state that more tenured managers should have more knowledge of technological trends in the industry and this should make them more committed to innovations.
Summarizing these concepts, it seems that CSQ creates a negative relationship between tenure and the innovativeness of a firm. The literature provides conflicting ideas about the influence of risk-taking propensity on the relationship between tenure and innovativeness of a firm. The ability to identify and implement novel/unique ideas also seems to be too complicated to simply suggest a positive or negative impact on the relationship between tenure and innovativeness.
managers with a long tenure may have a high CSQ, but this does not necessarily mean that they are reluctant to all innovations. Daellenbach, McCarthy &Schoenecker (1999) derive from Burgelman (1991) for CEOs with a long tenure: “Innovations that fit well with the current strategy and are developed through the induced strategy-making process would be more likely to receive support than initiatives that emerge autonomously outside the scope of the current strategy”. Based on Tushman and Anderson (1986), Daellenbach et al. state that ‘competence enhancing’ i.e. incremental innovations, are more likely to be introduced by incumbents, while ‘competence destroying’ i.e. radical innovations, are more often introduced by newcomers. Based on these ideas, one can argue that incremental innovations which are often in line with the current strategy and do not require novel ideas from outside of the firm/industry, are likely to receive support by long tenured CEOs, while radical innovations which are often developed outside of the scope of the current strategy (Burgelman, 1991) will be less likely to gain support from long tenured CEOs, who prefer stability and efficiency (Miller, 1991). The same argument could be used the other way around for CEOs with a short tenure. They would be more likely to support radical innovations since they do not have a high CSQ and are more likely to bring novel/unique ideas into the firm.
The influence of risk-taking propensity on the impact of CEO tenure on the tendency to engage in radical or incremental innovations of a firm is ambiguous. CEOs with a short tenure may be reluctant to taking risk since they are looking to prove themselves without taking too much risk, which indicates they might aim for short-term profits for the firm, which is negatively correlated to (radical) innovativeness. In addition to this, short-tenured CEOs might not have created enough support yet within the firm to take the necessary risks related to radical innovation.
Overall, it seems that the profile of short-tenured CEOs fits better with radically innovative firms, while the profile of long-tenured CEOs fits better with incrementally innovative firms.
2.2 Innovativeness of the firm
Commitment to innovation
The innovativeness of a firm can be analysed on different levels. The first indicator is at the input level; this is the commitment of management to innovation. In defining commitment to innovation this study uses an adapted definition from Hitt et al. (1990), since this study only focuses on product innovation it will define commitment to innovation as; the managerial willingness to allocate resources and activities that lead to the development of new products and technologies. It is often measured by R&D intensity, (e.g. Levin et al., 1985).
(Wanous, 1980) (Schwenk, 1993), and negatively impact a CEOs willingness to change (Meyer, 1975). Furthermore, firms that follow strategies that emphasize product/market innovations are found to be led by shorter-tenured CEOs than firms that emphasize efficiency (Chaganti and Sambharya, 1987) (Thomas et al, 1991). Combining this with the findings of Barker & Mueller, (2002) who state that tenure negatively impacts a firm’s commitment to innovation, and Dechow and Sloan (1991) who found that CEOs often reduce R&D spending in their final years, it is hypothesized:
Hypothesis 1 (H1): A firm’s commitment to innovation (R&D intensity) is negatively associated with the tenure of its CEO.
Innovative output
At the output level, innovativeness can be measured in several ways, the most commonly used measures are patents, patent citations and new product announcements (Hagedoorn, 2003).
In order to fully understand the influence of CEO tenure on the innovativeness of a firm it is important to, in addition to CEOs commitment to innovation, also measure the innovative output of a firm. In this way not only the willingness of CEOs to innovate is researched but also how skilful they are in using the R&D expenses to create actual innovative output. This indicator is measured by analysing each firm’s number of patent applications. Taking into account the issues which led to H1, and in accordance with the upper echelon theory and the high correlations which are often found between R&D expenses and patent output (e.gTrajtenberg, 1990), it is hypothesized:
Hypothesis 2 (H2): A firm’s innovative output (patent applications) is negatively associated with the tenure of its CEO.
Successfulness of the innovative output
less committed to innovation, i.e. willing to invest in R&D, but will be more efficient and successful in the innovative activities in which they do engage. Therefore, it is hypothesized:
Hypothesis 3 (H3): The PSR of a firm is positively associated with the tenure of its CEO.
Radical vs. Incremental innovative output
Radical innovations are often described as innovations which require a high degree of new knowledge while incremental knowledge only requires a low degree of new knowledge (Dewar & Dutton, 1986) A new product development is often described as radical if the technology is new to the adopting unit, and new to the referent group of organizations (Daft & Becker, 1978) or it is based on its newness to the world (Booz et al., 1982)(Griffin, 1997)(Garcia and Calantone,2002). Innovation projects, in which existing products are modified, on the other hand, are often described as incremental innovations.(Kleinschmidt and Cooper, 1991) (Griffin, 1997). Since this paper analyses the relationship between two inter-firm variables, it will differentiate between radical and incremental innovation based on whether or not the innovation is new to the adopting unit (Daft & Becker, 1978). In order to create radical innovations a firm has to combine new to the firm knowledge with existing knowledge (Ahuja and Lampert, 2001)(Katila and Ahuja, 2002).Next to the new knowledge that is required for radical innovations,Visser et al. (2010) emphasizes that radical innovation projects are associated with higher levels of uncertainty, while incremental innovation projects are characterized by relatively low levels of uncertainty. Summarizing, in order to promote and manage radical innovations it is necessary to have a CEO who is able to identify and implement new knowledge and has a high risk-taking propensity, while incremental innovations require less new knowledge and fit better with managers who are risk-averse.Since long-tenured CEOs have a high CSQ (e.g. Schwenk, 1993), “a limited search of alternatives” (Pfeffer, 1983),generate a smaller set of novel or innovative ideas when faced with new situations (e.g. Helmich, 1977), and overall seem less willing to take risks (e.g. Wiersema, 1992), it seems that long-tenured CEOs are more likely to engage in the management of incremental innovations. On the other hand, short-tenured CEOs have a lower CSQ, just entered the industry/firm and thus seem better able to identify and implement novel/unique ideas, and overall seem to have a higher risk-taking propensity.Therefore, short-tenured CEOs are more likely to engage in the management of radical innovations, resulting in these hypotheses:
Hypothesis 4a (H4a): Long-tenured CEOs will have a higher degree of incremental patent applications than short-tenured CEOs
The influence of risk-taking propensity as a moderator on the relationship between CEO tenure and firm innovativeness is not entirely clear from the literature, even though most papers suggest a negative influence of tenure on risk-taking propensity e.g. (Finkelstein &Hambrick, 1990) (Wiersema, 1992) there are also authors who find a positive impact of increasing tenure on a firm innovativeness (Simsek, 2007). Based on this ambiguity, it seems that the relationship between these two variables might be more complex than just a linear relationship where short-tenured CEOs positively impact the degree of radical patent applications and long-tenure negatively impacts the degree of radical patent applications. Since tenure is a continuous process there is a possibility that the concepts, which shape the relationship between tenure and the tendency of CEOs to engage in radical or incremental innovations, cancel each other out for managers with a medium tenure. In order to analyse the possibility of this more complex relationship, the following is hypothesized:
Hypothesis 4c (H4c): An inverted U-shape relationship exists between CEO tenure and a firm’s degree of radical patent applications.
3 Methodology
3.1 DataThe impact of CEO tenure on the innovativeness of small and medium sized business enterprises is investigated using a quantitative approach on a sample of 54 firms, whichcan be found in Table 1 in the Appendix. When interpreting the relationship between tenure and innovation it is important to control for technological dynamism (Wu &Levitas, 2005). Hence, the sample consists only of companies from the same geographical area and industry. The sample firms are based in the United States (U.S.) and all operate in the pharmaceutical manufacturing industry. The U.S. has the largest market for pharmaceuticals and holds the intellectual property rights to most new medicines. It employed around 272,000 people in 2010 and invested around $67.4 billion on R&D (SelectUSA). Most of the R&D expenditures in this market are related to new drug development (Baily, 1972). The sample is created using data from The Bureau van Dijk Ownership Database (Orbis). A stepwise explanation of how the sample is generated can be found in Figure 1 in the Appendix, these steps are necessary to fit the data within the scope of this research.
intellectual property (Danzon et al., 2005) (Girotra et al., 2007). To compare patent data and R&D expenses across firms, a measurement period of two years is used, since reliance on a single year might not detect the true correlation between the relationships investigated (Rumelt, 1991). The period during which the indicators for innovativeness were measured was from January 2010 until December 2011. To compare patent data within firms, all data from the inception of the firm up until December 2011 is used.Using patent data fits well with the aim of this paper to differentiate between radical and incremental innovative output. In order to make this differentiation it is important to use indicators which provide detailed information about the innovation. More general advantages of using patent data as an indicator of innovativeness are; patents are objective, since they are processed and validated by patent examiners (Belderbos, 2010), they are publicly available, and provide the highest level of details on firms’ technological activities (Griliches, 1990). Most of the shortcomings of patent data as mentioned e.g. by Basberg (1987) and Belderbos et al. (2010) are dealt with by the geographically and industry restricted sample choice. Since this paper builds upon the upper echelon theory, it seems to be more appropriate to investigate small and medium-sized enterprises (SMEs) than large multinationals, since intrinsic characteristics of CEOs of SMEs have a strong predictive value for a firm’s innovation performance (de Visser et al., 2011). Additionally, small firms use patenting relatively more frequent than large firms (Schmookler, 1975), and small firms seem to make more commercial use of their patents than larger firms (Sanders, 1964). In addition to this, SMEs tend to have fewer patents than large multinationals which makes the individual analysis of each patent, which is necessary for the scope of this research, doable.
3.2 Measures
Independent variables
Dependent variables
As mentioned before, the innovativeness of firms is measured and compared within and across firms using several indicators of innovativeness.
The commitment to innovation is measured by analysing the R&D expenses per employee. This ismeasured in amount of dollars per employee; spend on average per year during the measurement period. This is an indicator of management’s commitment to innovation which internally controls for firm size. It is comparable to the more often used measure R&D intensity (sales/R&D expenses) (e.g. Levin et al., 1985). However, since our sample consists of many pharmaceutical companies with very high R&D expenses in comparison to their sales, it is more suitable to control for size by using the number of employees instead of sales.
Innovative output is analysed by measuring the total amount of patent applications during the measurement period, this is a common used measure (Basberg, 1987). The comparison is made across firms.The relative innovative output of the sample firms is measured by comparing the amount of patent applications of each firm during the measurement period, to the average number of patent applications per year of the firm since the first year in which it applied for a patent. In this way an inter-firm analysis can be made to see whether or not during the measurement period the firm’s patent output has been above the firm average, (firm with above firm average output = 1, firm with below firm average output = 0).
The successfulness of the innovative output is measured by the patent success ratio, which is the percentage of patent applications which have been granted (McAleer&Slottje, 2005) during the measurement period, it is compared across firms. Based on the mean percentage of granted patents during the measurement period, the sample was divided into two groups, on the one hand the firms with a percentage granted patent applications higher than the sample mean and on the other the firms with a percentage granted below the sample mean (0 = below average of sample, 1 = above average of sample). Since it is not analysed as a ratio in this paper, an above sample average PSR is referred to as a patent success (PS). The relative patent success is compared inter-firm in a similar matter as the relative innovative output is measured, in this way an inter-firm comparison can be made to see whether or not during the measurement period the firm’s patent output has been above firm average successful (firms with above firm average PSR = 1, firm with below firm average PSR = 0). Since it is not analysed as a ratio, in this paper an above firm average PSR is referred to as a relative patent success.Thus the variables used in the regression analyses are named PS, while the PSR’s of each firm are used to create these variables.
exploitative (based on existing knowledge base). This paper uses technology class information to classify patents as either explorative or exploitative. The World Intellectual Property Organization (WIPO) uses the International Patent Classification (IPC) to classify the different areas of technology to which a new patent pertains (WIPO, preface to IPC).To determine whether or not a new patent application should be classified as explorative or exploitative, a patent portfolio of all technology classes in which the firm already had patent applications before the measurement period is made. This portfolio is one way to determine the technological position of a firm (Jaffe, 1986), and describe and capture the characteristics of a firm’s knowledge stock (Ahuja&Katila, 2001). Therefore, when a firm patents in a new technological niche, they extent their knowledge stock as well as their primary business (Patel &Pavitt, 1997). Radical innovations are typically based on new knowledge while incremental innovations draw from the existing knowledge stock (Abernathy & Clark, 1985) (Subramaniam&Youndt, 2005). Therefore, this paper defines a patent as being incremental when it draws from the existing knowledge stock, while a patent which uses new to the firm information is defined as radical. A patent is considered radical when one of the technology classes to which it belongs is new to the firm. If all technology classes to which the patent relates were already familiar areas of technology to the firm, then a patent is classified as incremental. This paper follows Lerner (1994) Wu &Shanley (2009) and Belderbos et al. (2010) in using the first 4-digit IPC code to determine a patent’s technological class. In order to determine the degree to which firms engage in radical innovations, the number of radical innovations during the measurement period was counted. If a firm applied for radical patents during the measurement period it is considered radically innovative, while firms that did not apply for radical patents are considered incrementally innovative (radically innovative = 1, incrementally innovative = 0). When a firm had granted radical patents during the measurement period it is defined as successful radically innovative, (successful radically innovative = 1, not successful radically innovative = 0).
Control variables
Age is one CEO characteristic which is often closely related to tenure. In addition to this Barker & Mueller (2002) found Age to be a stronger predictor of innovativeness than tenure, while other authors found Age to significantly influence R&D spending, (e.g. Mezghanni, 2010), therefore in each analysis CEO Age is a factor that is controlled for.
4 Analyses and results
Using a probitregression, it is found thatpatent success (PS) is not significantly influenced by positional tenure across firms, nor is it significantly influenced by positional-and firm tenure when the analysis is run within each firm (relative patent success), comparing the PSR during the measurement period with each firm’s average PSR. PS is negatively influenced by firm tenure, while firmtenure² positively influences the PS across firms; this indicates a u-shaped relationship, where an increasing firm tenure negatively influences the PS for small values of firm tenure, while large values of firm tenure positively influence the PS. This effect is significant at a 90% confidence level and disregards H3.
5 Discussion
The outcomes of the regression analyses provide interesting insights about the influence of CEO tenure on the innovativeness of firms. The commitment of management to innovation seems clearly negatively related to CEO tenure, both positional as well as firm tenure have a negative impact on the R&D intensity of firms. This is in line with the findings ofe.g. Thomas et al. (1991), and Barker & Mueller(2002). Specifically, for CEO firm tenurein this sample, it would mean that for each additional year of tenure, firms on average spend $356.544 less per employee per year, ceteris paribus. Each additional year of CEO positional tenure would, on average lead to a decrease in R&D expenses of $15.439.50 per employee, per year, ceteris paribus. The influence of tenure on the innovative output of firms is positive; this indicates that increasing tenure has a positive influence on the innovative output of firms. Combining these results it can be assumed that based on increasing experience within the firm and hence the industry, CEOs become more effective resulting in a higher innovative output while spending less money on R&D.
Positional tenure has a positive impact on the innovative output when compared with the average innovative output of the firm, indicating that when a CEOs time in the office increases, the innovative output of the firm increases relative to the firms average. Firm tenure did not significantly impact this relationship.
The PS was not influenced by tenure in the within firm analysis. Even though one can expect that with an increasing tenure of the CEO, the firm would increase the percentage of granted patent applications, this effect was not significant. This indicates that other factors over time, for which this paper does not control, have a larger impact on the average PS.
Another interesting finding is the fact that positional tenure influences the extent to which firms engage in radical innovations, while firm tenure does not influence this. This difference could be explained due to the fact that as their positional tenure grows; CEOs become more embedded in the organization and secure of their jobs. This will increase their risk taking propensity, resulting in a higher degree of radical innovations. After a while this positive effect decreases, probably due to the influences of CSQ and a decreasing input of novel/unique ideas.Figure 3 in the Appendix provides a plot of the impact of positional tenure in days on a firm’s tendency to engage in radical innovations. As can be seen in the plot this positive effect lasts until around 8 years of tenure after which increasing positional tenure has a negative impact on the tendency to engage in radical innovations. The outcomes of this plot are significant at a 90% confidence level from around 0-4 and 11-24 years of positional tenure, this means that in between this period the results are non-significant. This indicates that during this period the effects of short-tenure are probably cancelled out by the impact of long-tenure.
6 Conclusions and managerial implications
This paper has differentiated between positional tenure and firm tenure and several indicators for the innovativeness of a firm in order to clarify the, in the current literature, ambiguous relationship between top executive tenure and the innovativeness of a firm. In order to examine why many articles find no significant relationship between top executive tenure and the innovativeness of a firm, this paper differentiated between a firm’s commitment to innovation and its actual innovative output. In addition to this, a differentiation between radical and incremental innovative output was made.
for a firm’s tendency to engage in radical innovations. This tendency therefore seems to be strongly related to risk taking propensity, since risk taking propensity decreases along with positional tenure and not necessarily along with firm tenure. Therefore future research on the influence of tenure on risk taking behaviour and radical innovations should focus on positional tenure.This research showed the importance of measuring several types of tenure and multiple indicators of innovativeness on both the input and the output side. It shows that even though managerial characteristics can explain directly the commitment of management to innovation, this does not necessarily mean it also influences the actual innovative output of firms in the same way.
7 Limitations
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9Appendixes
9.1 List of Figures
Figure 1. Method of creating the sample
1. Pharmaceutical industry – Manufacturing companies 65,300
2. With patents 4,766 3.With CEO 2,439 4.Public/US industrial 1,230 5.5-500 employees 569 6. Minimum of 10 patents 373 7. U.S. 121
Figure 2. Impact of firm tenure (natural logarithm) on PS
9.2 List of Tables
Table 1. List of sample firms
Name Bureau van Dijk ID Number
Natural alternatives international, Inc. US841007839
International isotopes, Inc. US742763837
Medivation, Inc. US133863260
Talon therapeutics, Inc. US320064979
Novelos therapeutics, Inc. US043321804
Soligenix, Inc. US411505029
Anika therapeutics, Inc. US043145961
Biodelivery sciences international, Inc. US352089858
Novabay pharmaceuticals, Inc. US680454536
Helix biomedix, Inc. US912099117
Raptor pharmaceutical, Corp. US860883978
Orasure technologies, Inc. US364370966
Biotime, Inc. US943127919
Star scientific, Inc. US521402131
Santarus, Inc. US330734433
Celsion, Corp. US521256615
Cyclacel pharmaceuticals, Inc. US911707622
Harbor diversified, Inc. US133697002
Biolife solutions, Inc. US943076866
Ziopharm oncology, Inc. US841475642
Titan pharmaceuticals, Inc. US943171940
Prophase labs, Inc. US232577138
Pozen Inc. US621657552
Threshold pharmaceuticals, Inc. US943409596
Siga technologies, Inc. US133864870
Cytrx, Corp. US581642740
Cortex pharmaceuticals, Inc. US330303583
Athersys, Inc. US341830213
Vivus, Inc. US943136179
Adamis pharmaceuticals, Corp. US820429727
Stemcells, Inc. US943078125
Corcept therapeutics, Inc. US770487658
Alexza pharmaceuticals, Inc. US770567768
Biocryst pharmaceuticals, Inc. US621413174
Achillion pharmaceuticals, Inc. US522113479
Aradigm, Corp. US943133088
Sunesis pharmaceuticals, Inc. US943295878
Acadia pharmaceuticals, Inc. US061376651
Repros therapeutics, Inc. US760233274
Durect, Corp. US943297098
Repligen, Corp. US042729386
Celldex therapeutics, Inc. US133191702
Avanir pharmaceuticals, Inc. US330314804
Arca biopharma, Inc. US363855489
Neurocrine biosciences, Inc. US330525145
Alnylam pharmaceuticals, Inc. US770602661
Synta pharmaceuticals, Corp. US043508648
Heska, Corp. US770192527
Nps pharmaceuticals, Inc. US870439579
Lexicon pharmaceuticals, Inc. US760474169
Vical, Inc. US930948554
Table 2. Variables and some of their characteristics
Variables Analysis type Type of innovation measured Type of data Independent variables
Firm tenure Across firms Years
Positional tenure Across firms Years
Dependent variables
Innovative output Across firms Patent applications Count
Relative innovative output Inter firm Patent applications Dummy/Binary Patent success (PS) Across firms Granted patent applications Dummy/Binary Relative patent success Inter firm Granted patent applications Dummy/Binary Percentage radical innovations Across firms Radical patent applications Dummy/Binary Successful radical innovativeness Across firms Radical granted patent applications Dummy/Binary Commitment to innovation Across firms R&D expenses, per employee. Dollars
Control variables
Age Across firms Years
Number of employees Across firms Count
