The Effect of CEO Power on Organizational Innovation: An Empirical Investigation

Despite the mounting evidence on the effect of powerful CEOs on organizational decision-making and performance, their role in shaping the firm’s innovation agenda is less clear. This study seeks to contribute to the on-going research in this area by exploring the link between CEO power and two types of organizational innovation activities: exploratory and exploitative innovations. Drawing from core arguments of Agency Theory, we propose that firms led by powerful CEOs are more likely to pursue more exploratory innovations and less exploitative innovations. Furthermore, we argue that the link between CEO power and organizational innovation activities is significantly moderated by the relative presence of outside directors on the board. Using a sample of 129 large U.S. firms as our empirical context, we found a negative relationship between CEO power and exploitative innovation. In addition, the proportion of outside directors on the board was found to be a significant positive moderator of the relationship...