Does Managerial Ability Drive Firm Innovativeness?

Abstract

In this paper, we investigate the impact of managerial ability on firm innovativeness. We further investigate how managerial ability impacts the association between firm innovativeness and competitive advantage. We employ two measures of managerial ability, namely strategic managerial ability and operational managerial ability. We find that firm innovativeness rises with strategic ability at an increasing rate. However, firm innovativeness initially falls and then rises with an increase in operational ability. Our results are consistent with the notion that a firm's innovation activity is a tradeoff between opportunity exploration and exploitation in that explorative and exploitative activities compete for manager's fixed attention. The greater the strategic ability of management, the more opportunity-focused they are, the greater is their risk tolerance, and the greater is the investment in research and development. Strategic managers seek and cultivate growth opportunities to resolve the uncertainty associated with the growth opportunities in the firm's favor, which enhances the firm's competitive advantage.

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