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How CEO/CMO characteristics affect innovation and stock returns: findings and future directions

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Abstract

Investor stock market response has received a great deal of attention in the marketing literature. However, firms are not faceless corporations; individuals such as CEOs set their strategies. Upper echelon and strategic leadership theories hold that chosen strategies derive from these individuals’ opinions, which are a function of their personalities, demographics, experiences, and values. Building on recent literature, the authors propose how CEO characteristics can influence innovation and stock returns. Investors are motivated by cash flow expectations—in particular, the prospect of increasing and accelerating future cash flows, reducing associated risks, and increasing residual value. This systematic review focuses on four main characteristics—personality, demographics, experience and compensation—to arrive at a set of propositions on innovation and stock returns. After reviewing the extensive literature on CEO characteristics, the authors outline the emerging findings on CMO characteristics; propose future research directions on CEO and CMO characteristics, innovations, and stock returns; and offer implications for practice.

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Notes

  1. Strategic leadership theorists have defined the term “top management team” as a relatively small group of the most influential executives at the apex of an organization—usually the CEO (or general manager) and those who report directly to him or her (Finkelstein et al. 2009).

  2. Stock returns reflect the change in the total value of an investment in a common stock over some period per dollar of initial investment (e.g., Srinivasan and Hanssens 2009) and is operationalized as (Pricet + Dividendt – Pricet – 1)/(Pricet – 1).

  3. Innovation refers to the process of bringing new products and services to market (Hauser et al. 2006).

  4. We consider both the direct and indirect effect through innovation on stock returns of CEO characteristics (see, e.g., Rubera and Kirca 2012; Srinivasan et al. 2009; Warren and Sorescu 2017; Warren et al. 2019). We do not assume that the stock market immediately and fully incorporates all future cash flows that will derive from a CEO’s particular characteristics at the moment his or her appointment is announced. Thus, stock returns may adjust over time as the market processes the implications of various CEO factors. In general, we build our propositions around the idea of semistrong stock market efficiency (Fama 1970), in which the stock market adjusts to all available information, but not instantaneously.

  5. Military background can be classified as either a personality or a demographic characteristic. We do not regard military background as a demographic characteristic because it is a former occupation for current CEOs. More important, research has treated military background as a “personality trait” because it is a proxy for conservatism and affects individuals’ values, behaviors, and actions (e.g., Benmelech and Frydman 2015).

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Acknowledgements

The authors are grateful to the JAMS editors, AE and reviewers for their insightful comments and helpful suggestions. They also thank the seminar participants at the JAMS Thought Leaders conference on Generalizations in Marketing at Norwegian Business School (BI Oslo) and at the AMA Sheth Doctoral Consortium in Leeds.

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Authors and Affiliations

  1. College of Business and Economics, California State University, East Bay, 25800 Carlos Bee Boulevard, Hayward, CA, 94542, USA

    Ya You

  2. Marketing Department, Boston University Questrom School of Business, 595 Commonwealth Avenue, Boston, MA, USA

    Shuba Srinivasan

  3. D’Amore-McKim School of Business, Northeastern University, Boston, MA, 02115, USA

    Koen Pauwels

  4. BI Norwegian Business School, Oslo, Norway

    Koen Pauwels

  5. IMD, Lausanne, Switzerland

    Amit Joshi

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Correspondence to Ya You.

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You, Y., Srinivasan, S., Pauwels, K. et al. How CEO/CMO characteristics affect innovation and stock returns: findings and future directions. J. of the Acad. Mark. Sci. 48, 1229–1253 (2020). https://doi.org/10.1007/s11747-020-00732-4

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