Managerial Human Capital and Corporate R&D Investment

Haizheng Li
Team Members
Jing Xu, Ph.D. ECON 2021
About This Project

Professor Haizheng Li and School of Economics alumna Jing Xu published "Managerial Human Capital and Corporate R&D Investment" in the Journal of Economic Behavior and Organization. They write:

This paper discusses how the human capital of a firm's leadership would influence its R&D investment decision. The human capital of a leadership team is measured by leaders' past experiences — for example, their education, occupation, etc. Given their crucial roles in corporate decisions, we consider the human capital of both the CEO and the board of directors (BOD). The interplay of CEO and BOD is also considered since their conflict opinion/consensus, smooth collaboration, etc., would all affect decision-making.

The results provide practical guidance for firms to build an effective management team and control body for a company that could promote innovation. More specifically, a careful review of the CEO and BOD's human capital traits based on their experience could help identify suitable personnel. The selection of leaders based on their human capital traits should be explicitly tailored to different sub-industries and firms of different sizes. Moreover, it is important to consider the complementarity of human capital characteristics between the CEO and the BOD to establish a structure for innovation.


In this study, we employ firm-level panel data from China to study how the human capital characteristics of a firm's leadership affect R&D investment. One novel feature of this study is that we include human capital traits of both the CEO and the Board of Directors, as well as their interplay. Human capital is measured with various experiences to capture observed and unobserved traits. Using various econometric techniques, we find that both CEO's and BOD's human capital characteristics have a significant impact on R&D investment. CEOs’ innovation experience and overseas experiences promote innovation, while their production experience hinders it. The education and government experiences of board directors show different impacts on R&D investment. Moreover, the human capital traits of CEO and BOD influence each other and thus jointly affect innovation. The effects of leadership human capital on R&D investment are more profound in tech-intensive and smaller firms than in traditional or larger firms.