CEO Ownership and Innovation Investments: Is Shareholding Incentivizing Enough?

Abstract: Agency theory suggests that managers may under- or over-invest in R&D depending on whether they see the risks or possibilities investing in it. This study examines how CEO ownership is related to investments made in R&D. This is done by maintaining two different regression analyses where one investigates how CEO ownership affects investments in R&D on a broader level and the other investigates different ownership levels and how the different levels relate to the investment behavior. For the study, Swedish firms listed on OMX (Large, Mid & Small-Cap) and First North have been studied between 2017 and 2020. It is significantly found that CEO ownership is positively related to investments made in R&D, something which is in line with the first hypothesis. This suggests that ownership in the firm is likely to abate the under-investment problem. However, segmenting for different ownership levels, significant results are only identified at lower/medium CEO ownership levels, hence not making it possible to draw any conclusions about how CEO ownership relates to the investment behavior at higher ownership levels.