The Effect of Managerial Capabilities on Firm-Level Innovation

Foege, J. Nils; Lohmar, David; Nüesch, Stephan

Abstract

This study investigates the link between managerial capabilities and firms’ long-term innovation performance. Drawing on the concept of resource orchestration, we argue that top managers’ ability to structure, bundle, and leverage firms’ resources is critical to creating new combinations of resources, i.e., innovations, that enable their firms to capture emerging market opportunities. Hence, top managers’ capabilities to make decisions with regards to the allocation and deployment of resources ensure the strategic fit between the firms’ resource endowments and the environment. Acknowledging that such decisions depend on the internal and external context of the firm, we further introduce the tenure of the chief executive officer (CEO) and the turbulences in the firm’s environment as two critical boundary conditions for this link. To test our conceptual model, we collected data on 1,270 U.S.-listed firms from 1992 to 2015. Our results support our theoretical premise that managerial capabilities enhance firms’ innovation performance in the long run and that this relationship is attenuated by CEO tenure and amplified by environmental turbulences.