Institutional Background, Top Management Succession And Firm Technological Innovation

Under the background of the China's new normal period, this paper study whether top management succession and cross generation turnover of family firm impede technological innovation activities. I endogenously put the successors'performance pressure and governance environment into the firms'technological innovation model, interpreting the theoretical and practical logic about China's low-level technological innovation. The identification of causal relationships is performed using a series of quantitative research methods, including a difference in difference model estimation based on propensity score matching, A comprehensive and prudent investigation of causality in the context of the institutional background, Further research and analysis are conducted on the special research scene of cross generation turnover of family firms, attempting to provide a new perspective to understand the effects of top management behavioral factor besides numerous determinants of China's firm technological innovation. The conclusions are as follow:First of all, under the condition of information asymmetry and investors'short-term capital gains preference, the successors will boost short-term earnings to alleviate performance pressure following top management succession from the logic of management myopia, and then, the R&D expenditures will be cut down, and technological innovation activities will decrease accordingly. The causality should be more significant in the firms experiencing involuntary turnover, outside successor employment, less powerful top management succession and politic-connected top management departure. The investigation on various succession types supports the assumption of the mechanism that the successor will prefer short-term investment in her early-tenure.Second, the investigations on moderating effects of institutional background factors find that, Non-SOEs, firms with less holding of first big shareholder, firms with less analyst coverages and firm with low-level financial transparence will be more likely to cut down R&D expenditures because of successor's myopic behaviors in an information asymmetry environment. In accordingly, top management succession will be more harmful to firm technological innovation in the above institutional environment.Third, the evidence providing by this paper supports the hypothesis that family firms' cross generation succession should impede firm technological innovation as also. Further, for family firms experiencing cross generation succession, favorable family governance, ownership design and corporate governance will moderate the adverse effects of cross generation succession on technological innovation. Meanwhile, unfavorable institutional background factors such as information asymmetry between investors and top management will aggravate the adverse effects of succession on technological innovation. Based on the above conclusion, we believe that institution dilemma should increase the possibility that firm value decreases following cross generation succession. Finally, this paper finds the cross generation succession of China's family firm brings value loss to the firm, and technological innovation descends following succession perform a channel effect in the succession-firm value loss.In summary, in the context of effectiveness insufficiency of capital market, this study provides the evidence supporting the view that financial market exert distortion effects on real economy, enriches the literature in the firm technological innovation field, provides a top management myopia logic to interpret technological innovation inhibitory effects, contributes to the top management succession research, when top management myopia can be used to analyze the mechanisms underlying various succession consequences. Meanwhile, this paper investigates cross generation succession-technological innovation relationship using the sample of family firms of China mainland for the first time. We hold that the promoting construction of China's capital market, transform the tendency that the capital market restrains the long-term value investment, fostering the institutional environment encouraging technological innovation, will beneficial to firms'long-term development and value creation.