CEO labor market and R&D investment in high-technology firms: an empirical study on the disciplinary effect of CEO labor market

Previous corporate governance research has paid little attention to the role of chief executive officer (CEO) labor markets in controlling CEO behaviors because the CEO labor market has been considered inefficient. With the increasing mobility of top executives across firms, however, the potential of CEO labor markets to serve as an external disciplining force has been growing. In this study, we argue that CEOs will be more pressured to engage in desirable behaviors as the CEO labor market becomes more efficient. Using a longitudinal sample of S&P 1500 firms in high-technology industries in United States from 2011 to 2019, we found that CEOs tend to increase R&D investment as CEO labor market supply increases. We also found that the tendency is greater when external CEO succession is more frequent in the market. Our results demonstrate that CEO labor markets have the potential to function as an effective external governance mechanism.