Values That Shape Marketing Decisions: Influence of Chief Executive Officers’ Political Ideologies on Innovation Propensity, Shareholder Value, and Risk

Saim Kashmiri, Vijay Mahajan
Article Snapshot
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Key Takeaways
  • ​CEOs’ degree of political liberalism is found to positively impact their firms’ rate of new product introductions (NPIs).
  • The impact of CEOs' political liberalism on NPIs is found to be weakened under conditions of low CEO power, high CEO equity-pay ratios, high marketing department power, and economic boom.
  • CEO's degree of political liberalism is found to be associated with superior Tobin’s q, but also higher stock return volatility.

​Article Snapshot: Executive Summaries from the Journal of Marketing Research

We examine the influence of CEOs’ political ideologies on firms’ innovation propensity. CEOs’ degree of political liberalism is found to positively impact firms’ rate of new product introductions.This impact is weakened, however, when CEOs have low power and high equity-pay ratios.


We provide important insights to board members and compensation committees on the factors they can use to monitor and control the marketing impact of CEOs’ political ideologies.

By highlighting that the impact of CEO liberalism on firm innovation is at least partly causal, we provide a clearer, more nuanced understanding of the process through which CEOs’ political ideologies influence firm behavior.


Research
Even  though CEOs are  involved in a number of strategic marketing decisions, some of which are critical drivers of business success, research that investigates the role of CEOs’ personal values in shaping strategic marketing outcomes remains scant. A key marketing outcome, for which research on the role of CEOs’ values is almost non-existent, is new product introductions. We hypothesize that liberal CEOs are likely to be more risk-taking in their innovation-related decisions, and their greater risk-taking propensity is likely to be manifested in their firms' greater rate of NPIs.

Methods
We observed 421 publicly listed U.S. firms, representing 8 different industries between 2006-2010. Using CEOs' political contributions record, we measured each CEO’s political liberalism by the degree to which the CEO supported the Democratic (more liberal) political party as opposed to the Republican (more conservative) political party. We collected data on the number of new product introductions from firms' product-related press releases.Compustat, Execucomp, Hoover's, and company filings were the main sources for collecting data on other variables.

Findings
We show that under certain boundary conditions pertaining to CEO power, incentive structure, role of the marketing department, and state of the economy, CEOs’ political ideologies have a significant impact on firms’ rate of NPIs, and this innovation outcome, in turn, influences firms’ performance.

Implications

We emphasize that an executive’s political ideology can easily be observed through the executive’s political contributions record, and this observation can help board members assess the executive’s propensity to innovate before the executive is hired.To managers, our results suggest the need to weigh the pros (higher Tobin's q) and cons (higher stock return volatility) of a proactive innovation strategy. Finally, a CEO’s political ideology can serve as an effective signal, helping investors better assess the risk and return associated with holding a particular firm's stock.

 

Questions for the Classroom

  • What are the personal characteristics of CEOs leading the most innovative firms?
  • What factors limit the impact that CEOs have on their firm's innovation strategy?
  • What are the benefits and drawbacks to firms of CEOs being highly risk-taking in their innovation-related decisions?
Article Citations
Saim Kashmiri and Vijay Mahajan (2017) Values That Shape Marketing Decisions: Influence of Chief Executive Officers’ Political Ideologies on Innovation Propensity, Shareholder Value, and Risk. Journal of Marketing Research: April 2017, Vol. 54, No. 2, pp. 260-278.

 


Author Bio:

 
Saim Kashmiri, Vijay Mahajan
Saim Kashmiri is Assistant Professor of Marketing, University of Mississippi and Vijay Mahajan is John P. Harbin Centennial Chair in Business, Department of Marketing, McCombs School of Business, University of Texas at Austin.
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