Innovation is a prominent component affecting the economic development of the country and the firm (Fagerberg, 2004). Numerous studies have attempted to explore the factors that influence firm innovation at the macro, middle, and micro levels. At the macro level, several studies have highlighted factors associated with corporate innovation from the perspectives of the institutional environment, national policies, and the social legal system (Fang et al., 2017; Lou et al., 2022). Moreover, there has been extensive research on mid-level influencing factors, such as the impact of financial analyst coverage (Guo et al., 2019), market competition (Yang M. J. et al., 2021), and other factors on firm innovation. At the micro level, researchers attempted to evaluate the impact of ownership structure (Minetti et al., 2015), corporate policy (Krammer, 2022), and CEO political preference (Han, 2019) on corporate innovation.

R&D innovation is a complex and risky investment decision. Simultaneously, CEOs are the most critical decision-makers in firms; accordingly, CEO characteristics have a significant impact on firms’ innovation decisions. Prior studies classify CEO characteristics into personality and background traits. In terms of personality traits, using data from the U.S., Hirshleifer et al. (2012) discovered that overconfident CEOs increase companies’ revenue elasticity; thus, when they have sufficient cash, their willingness and drive to innovate increase. In a follow-up study, Abdel-Khalik (2014) found a significant positive relationship between CEO risk tolerance and firm innovation activities. Additionally, several studies on CEO characteristics have focused on narcissism (Kashmiri et al., 2017), proactiveness (Kiss et al., 2022), overconfidence (Pitenoei et al., 2019), hometown identity (Ren et al., 2021), sensation seeking (Sunder et al., 2017), among other characteristics. Regarding CEO background characteristics, several factors have been investigated, such as age (Chowdhury and Fink, 2017), gender (Strohmeyer et al., 2017), tenure (Cucculelli, 2018), compensation (Mazouz and Zhao, 2019), executive change (Biscotti et al., 2018), education level (Bromiley and Rau, 2016), expertise (Tabesh et al., 2019), and social background (Liu et al., 2018). Furthermore, previous studies have also explored CEOs’ foreign, military, academic, marketization-related, and diversified experience (Benmelech and Frydman, 2015; Chen et al., 2015; Yuan and Wen, 2018; Shen et al., 2020; Hou et al., 2021). In a study investigating CEO background characteristics, according to Gao and Hafsi (2015), executives with experience in manufacturing, research and development (R&D), and design functions are more knowledgeable about the entire R&D process, which increases the likelihood of R&D success. CEO individual characteristics impact corporate technological innovation, though the impact varies remarkably.

Prior findings on the relationship between CEO FB and corporate innovation have been inconsistent and contradictory. As previously described, there are three main perspectives on the relationship between CEO FB and corporate innovation: positive, negative, and unrelated. Firstly, some scholars argue that CEO FB is beneficial to corporate innovation. In the context of European countries, by creating new information exchange channels with financial institutions, Cosci et al. (2016) researched how CEOs with FB can reduce information asymmetry and enhance firms’ innovation performance. Furthermore, Li et al. (2021) reported that, within the context of U.S. enterprises, executives with FB are conducive to reducing corporate investment inefficiencies. Conversely, some scholars have reported no positive correlation between CEO FB and corporate innovation. According to data gathered from publicly listed Chinese companies, Liu et al. (2020) made the case that firms with more financial-background executives have higher investments in financial assets, smaller investments in fixed assets, lower R&D investments, and more severe financial constraints, all of which are detrimental to innovation through the crowding-out effect. According to Yang C. et al. (2021), research on Chinese listed companies discovered that corporate innovation is negatively impacted by the crowding-out effect of increased financial investment, which is generated by the consistent behavior of CEOs with financial expertise. Analyzing U.S. firms, Custódio and Metzger (2014) argued that financial-background CEOs have a considerable negative impact on firm innovation. In addition to the aforementioned literature, some scholars argue that there is no correlation between CEO FB and firm innovation. A significant analysis and discussion on the subject was presented by Barker and Mueller (2002), who obtained corporate data from Business Week and discovered that corporate R&D investment is the same regardless of whether the firm employs CEOs with FB, thus demonstrating that CEOs with FB are not correlated with corporate R&D investment.

Although the relationship between CEO FB and corporate innovation has been discussed in the literature, further research is necessary. First of all, a large and growing body of literature has investigated the impact of CEO FB based on upper-echelon theory, focusing more on the statistical link between CEO background and its economic consequences, without opening the “black box” and lacking in-depth analysis of the mechanism of this relationship. Moreover, while prior studies have mentioned the association between CEO FB and corporate innovation, there is no consensus; thus, further research is required to provide new evidence. Finally, most prior studies have examined the Western context; however, culture is a significant factor, so the same background may have diverse effects on people’s cognition and behavior in different cultural contexts. Hence, it is essential to analyze in the Chinese cultural context.

According to imprinting theory, during individuals’ formative professional years, work experience leaves an imprint on their psyche (especially on their cognition and capability), which will have a continuous impact on their career (Mathias et al., 2015). The financial industry is a high-risk sector (Calluzzo and Dong, 2015) with a distinct mode of operation and intensely stressful environment; thus, time spent in this sector is a critical period for CEOs. During this period, CEOs’ cognition and capability profiles are shaped to fit the financial work environment, which has a significant impact on the decisions they make later in their careers.

In terms of cognition, the CEO preference for short-term investments is determined by their financial experience. Due to its brief history, compared with Western economies, China’s capital market may exhibit speculative traits (Liu and Shrestha, 2008). Executives with FB are susceptible to the effects of the environment while working and studying the capital market. Consequently, their cognitive and behavioral patterns will be imprinted with speculation, which will shape their short-term speculative preference. Specifically, when making decisions, executives with a shorter time horizon are more inclined to focus on investment projects that can improve corporate performance quickly in the current environment (Stein, 1989; Laverty, 1996). Throughout their careers, these executives maintain the mindset and working practices they developed during this critical time (Dokko et al., 2009). Corporate innovation activities are risky, long-term (Zaheer et al., 1999), unclear about future growth (Pindyck, 1982), and capital-intensive. Once a company’s innovation activities fail, it becomes exposed to operational risks; therefore, CEOs with a short-term investment preference are more likely to pursue short-term/high-return projects when making investment decisions (Narayanan, 1985; Stein, 1988; Holmström, 1999), while abandoning long-term R&D projects with potentially higher yields.

In terms of capability, CEOs’ financial investment ability and social connections in finance lead to a “crowding-out effect” on corporate physical assets investment. CEOs with FB have a deeper and more specialized understanding of decision-making in the financial field (Graham et al., 2013), and their strengths lie in their mastery of financial instruments and knowledge of the financial industry. According to Waller et al. (1995), only corporate executives with professional knowledge and background can make decisions in a professional capacity. Executives with FB are capable of information processing, opportunity screening, and capital operation regarding finance; therefore, they are more inclined to make financial investments, while their companies become more financialized (Du et al., 2019). Additionally, CEOs with a background in finance can more quickly access investment opportunities by exploiting the social networks they are already a part of. Financial investments displace funds that would otherwise be available for R&D and other physical assets investments (Orhangazi, 2008), causing firms to use fewer resources for innovation as a result of financing restrictions, which will ultimately impede corporate innovation (Wang et al., 2017).

In summary, CEOs with an FB have a negative impact on corporate innovation in terms of both cognition and capabilities. Therefore, we propose hypothesis H1:

According to Palia and Lichtenberg (1999), the separation of ownership and control rights could lead to an interest conflict between shareholders and executives by giving self-interested executives an incentive to neglect their duties or use corporate resources to further their personal interests at shareholders’ expense (Jensen and Meckling, 1976). According to Baer (2012), innovation contributes to the growth of a firm’s competitive advantage and fosters corporate growth. Consequently, shareholders prefer firms that invest in R&D initiatives that will boost long-term profits. However, because investing in innovation is a high-risk, capital-intensive, and long-term corporate activity, executives may be tempted to reduce R&D investment to maximize their own profits. This has a detrimental effect on firms’ strategic planning and future growth (Cohen et al., 2013).

According to Jensen and Meckling (1976), there is an incentive compatibility effect as managerial ownership rises because it tends to bring management and shareholder interests closer together and lowers the principal-agent cost. Simultaneously, the corporate share structure changes, and the CEO’s share of corporate revenue shared in innovation activities increases. Therefore, executives are more likely to invest in projects that will maximize the value of the company when their interests are more strongly associated with those of the shareholders (Morck et al., 1988). Further, CEOs’ interests become increasingly aligned with those of the shareholders the more shares they own; consequently, they become more concerned about the long-term development of the firm and more likely to make innovative investments to enhance the enterprise value (Lin et al., 2011), thus mitigating the detrimental impact of their FB on corporate innovation. Therefore, the higher the managerial ownership, the more likely the negative impact of their FB on corporate innovation will be mitigated.

In sum, managerial ownership mitigates the negative impact of CEO FB on corporate innovation. Accordingly, we propose research hypothesis H2:

This study examined data from Chinese A-share listed companies for the period between 2017 and 2021. CEO FB data were obtained from the CSMAR’s China Corporate Figure Characteristic Series. Missing data on CEO FB were supplemented by manually searching for the information, and we removed data that were still vacant. The data on corporate patents were collected from the CNRDS, which is widely used by Chinese scholars. The other data used in the model were all from the CSMAR.

The sample selection criteria were as follows: (i) excluding the financial industry samples; (ii) excluding the ST and *ST companies; (iii) excluding missing and abnormal samples of relevant data; (iv) excluding the current year listed company sample; (v) we applied 1 and 99% tailing to all continuous variables in the model to reduce the impact of an extreme value on the research results. Our final sample included unbalanced panel data of 12,248 firm-year observations.

H1 predicted that CEO FB would have a negative impact on corporate innovation. The model was set using the ordinary least squares method to test H1. If the regression coefficient β₁ of FB is negative and significant, H1 is supported.

H2 predicted that managerial ownership mitigates the negative effect of CEO FB on firm innovation. To test H2, we added the interaction term FB*MO based on model 1 to form model 2. If the coefficient β₂ of FB*MO is positive and significant, H2 is supported.

Table 2 shows the descriptive statistics of our sample. The average of FB is 0.06, indicating that 6% of CEOs have a background in finance. The average of PAT is 1.90, the minimum value is 0.00, and the maximum value is 9.35, with a standard deviation of 1.65, indicating a large variation in patent applications across firms. Regarding the control variables, the average ROA is 0.04, the minimum is −0.34, and the maximum is 0.21, indicating a large variation in profitability across firms. The average of LEV is 0.39, the minimum value is 0.06 and the maximum value is 0.86. The average SIZE is 22.19, and the standard deviation is 1.30. The average SOE is 0.26, indicating that 26% of the sample enterprises belong to state-owned enterprises. The average FAGE is 2.95. The average INSHOLD is 0.40. The average SALEGRO is 0.17, and the median is 0.12. The average of Tobin’s Q is 1.89. The average of IDRATIO is 0.38, indicating that 38% of the directors are independent and overall, the Chinese Company Law’s requirement that the proportion of independent directors must surpass one-third is essentially met by the sample listed companies. The minimum of BSIZE is 4, and the maximum is 17, which complies with the provisions of Chinese Company Law.

Table 3 presents the correlation coefficient matrix among the variables. The variable correlation coefficient matrix shows that the correlation coefficient between FB and PAT is significant at the 1% level, revealing that CEO FB has a significant negative correlation with corporate innovation, supporting H1. Additionally, PAT has a significant positive correlation with ROA, SIZE, and SALEGRO. Further, PAT has a significant negative correlation, indicating that the selection of these variables into the empirical model is appropriate.

The results of the main regression analysis are reported in Table 4. The coefficient of FB in column (1) is −0.103, which is significantly negative at the 10% level (t = −1.72), indicating that CEO FB has a negative impact on firm innovation, and the results of the regression analysis support the H1. Column (2) reports the moderating effect of managerial ownership on the relationship between CEO FB and corporate innovation, and the coefficient of FB*MO is the primary concern. The coefficient of FB*MO in column (2) is 1.407 significant at the 1% level (t = 3.48), indicating that managerial ownership mitigates the negative effect of CEO FB on firm innovation, supporting H2.

Sustainable development has become a key topic within the context of escalating global environmental issues. In this regard, studying how to foster corporate innovation is essential, from a practical standpoint, because it drives sustainable development. Based on imprinting theory, we analyzed data from Chinese A-share-listed companies for the period 2017–2021 to explore the relationship between CEO FB and corporate innovation. According to our research, CEOs with FB have a detrimental impact on the innovation of their enterprises. However, when CEOs have higher managerial ownership, this negative impact is mitigated. After a series of robustness tests, our findings remained valid. The mechanisms by which CEO background influences corporate micro behavior are analyzed in this study, thereby contributing to the literature on the variables influencing corporate innovation.

First, while existing literature on the topic is relatively extensive, it is firmly rooted in upper-echelon theory and mainly attentive to the statistical relationship between CEO experience or background and corporate innovation. Notably, prior studies have overlooked this relationship’s intrinsic mechanisms. Based on imprinting theory, we provide an in-depth interpretation of the mechanisms by which CEO characteristics influence corporate innovation.

Second, prior research on CEO background has primarily explored their foreign (Yuan and Wen, 2018), military (Benmelech and Frydman, 2015), and academic experience (Shen et al., 2020), and paid little attention to their financial experience. This study incorporated CEO FB into the analytical framework of corporate innovation and added managerial ownership as a moderating variable to provide new empirical evidence for the study of factors influencing corporate innovation.

Third, several studies (Hirshleifer et al., 2012; Bromiley and Rau, 2016; Kashmiri et al., 2017) have examined this topic in the Western context; however, CEO cognition and behavior are deeply influenced by culture. Therefore, we explored the mechanisms from the perspective of Chinese culture, thus expanding the applicability of the relevant literature.

Based on the finding that CEO FB inhibits corporate innovation, enterprises should fully consider the compatibility between CEO background and the backgrounds of other executives, control the weight of executives with a background in financials to reduce the negative impact on corporate innovation strategy, and build innovation-oriented executive teams. Second, imprinting theory reveals that executive experience forms the imprint that affects their cognition and capabilities, which in turn impacts their decision-making; thus, enterprises should introduce an executive rotation system that encourages executives to abandon the rigid thinking answerable to their FBs, re-examine innovation strategies from new perspectives, and enhance their cognitive and decision-making abilities. Third, the findings suggest that managerial ownership inhibits the adverse effects of CEO FB on corporate innovation; in response, enterprises should establish and improve equity incentive plans to create incentive compatibility, thus allowing CEOs to exert their initiative and promote corporate value creation.

Regarding executives, first, they should be aware of how their background affects their behavior and decision-making, objectively perceive their own background imprinting and the limits of their reasoning, and fully take into account any background traits that could potentially influence their decision-making. Second, to establish the groundwork for scientific decision-making, executives should collaborate with team members from all backgrounds, gather information from various sources, and reduce their cognitive bias.

This study had a few limitations. First, due to limitations in the availability of research data, this study only included listed companies. Future research should also collect data from non-listed companies to test whether the FBs of CEOs in non-listed companies also impact corporate innovation.

Second, we mainly explored the impact of CEO FB on corporate innovation from the perspective of corporate technology innovation. However, in addition to technological innovation, corporate innovation also includes product innovation, process innovation, and other dimensions. Future studies should explore the relationship between CEO FB and product innovation or process innovation to specify the analytical framework of this topic.

Third, the national culture model developed by Hoftede et al. (2010) states that national cultural attributes vary. The national culture of a domestic firm influences its own internal culture and the consciousness of individuals in the firm, which forms idiosyncratic firm decisions and behavior. Therefore, we argue that investigating the connection between individual characteristics within firms and corporate behavior in various national cultural contexts is an important and valuable study path for future studies.