CEO turnover shock and green innovation: Evidence from China

Green innovation requires sustainable input. However, a tradeoff exists between long-term sustainable inputs of green innovation and the short-term perspective of CEOs who desire improved financial performance. This tension is amplified when CEOs are newly appointed. Using a sample of listed Chinese firms, we find that newly hired CEOs have a short-term focus, leading to a significant decrease in green innovation in the year of CEO replacement ( CEO turnover shock ). When newly hired CEOs take over, such firms shift their research and development (R &D) investments toward mergers and acquisition (M &A) activities. Moreover, the adverse impact of CEO turnover shock on green innovation is stronger in non -state-owned enterprises (non-SOEs) and firms without family CEOs but weaker for firms with good internal and external monitoring. Our findings provide theoretical insights into innovation research and agency issues and practical insights into CEO recruiting policy.