CEOs' multicultural backgrounds and firm innovation: Evidence from China

We examine the effect of CEOs' multicultural backgrounds, which play a critical role in shaping an individual's personality, on firms' innovation outputs. Employing the number of dialects in a CEO's birthplace as a proxy for cultural diversity, we focus on language-related cultural influence while controlling for experience-related cultural influence. Our hypothesis posits that the multicultural background makes the CEO more open-minded and adventurous and, therefore, more likely to invest in firm innovation. We find that CEOs with multicultural backgrounds devote more effort to and perform better on innovation than those without multicultural back-grounds. Cross-sectional analyses show that this positive effect of CEOs' multicultural back-grounds on innovation output is more pronounced when the firm is exposed to higher industry competition and when the information environment is more transparent. Our findings contribute to the literature on CEO characteristics by providing evidence of how the CEO's multicultural background induces alterations in the firm's innovation effort and performance.