The impact of corporate innovation on long-term performance: Does chief executive officer power matter in an emerging market?

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Abstract

This study aims to investigate the relationship between corporate innovation, financial sustainability, and the moderating role of chief executive officer (CEO) power within the context of Saudi Arabian firms. Grounded in resource-based theory, the research highlights the dual role of research and development (R&D) investments as a critical driver of long-term financial sustainability and a mechanism for fostering competitive advantage (Barney, 1991). Using a panel dataset of 1260 company-year observations from 2013 to 2022, the study employs pooled ordinary least squares (OLS) and fixed effects (FE) estimators to examine the impact of R&D investments on financial sustainability, measured by the sustainable growth rate (SGR). The findings reveal a positive association between R&D investments and SGR, suggesting that firms prioritizing innovation tend to experience greater financial stability. However, the study also uncovers a significant moderating effect of CEO power, indicating that excessive CEO control can hinder long-term investments in innovation and jeopardize future financial well-being, aligning with agency theory concerns (Naaman & Sun, 2022). This research contributes to the understanding of corporate innovation, CEO power dynamics, and financial sustainability, particularly within the emerging market context of Saudi Arabia, by highlighting the importance of effective corporate governance in fostering long-term value creation.

Keywords: Financial Sustainability, R&D Investments, CEO Power, Emerging Market

Authors’ individual contributions: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: G32, G34, O31

Received: 21.11.2024
Accepted: 25.03.2025
Published online: 28.03.2025

How to cite this paper: Alshamayleh, H. (2025). The impact of corporate innovation on long-term performance: Does chief executive officer power matter in an emerging market? Corporate Board: Role, Duties and Composition, 21(1), 49–59. https://doi.org/10.22495/cbv21i1art5