Managerial ability and research quotient

Purpose This study aims to examine whether and how managerial ability enhances research and development (R&D) productivity, measured through the research quotient (RQ), a forward-looking metric capturing the revenue elasticity of R&D spending. Design/methodology/approach The author analyzed a panel of 35,260 firm-year observations from U.S. publicly listed firms between 1998 and 2021. Managerial ability is measured using the two-stage efficiency-based approach of Demerjian et al. (2012). RQ data are sourced from Compustat following Knott’s (2008) methodology. The regression analysis includes firm and year fixed effects. Findings Results show a significant and positive association between managerial ability and RQ. A one-standard-deviation increase in managerial ability corresponds to an approximate 4.4% improvement in R&D productivity. This relation holds across alternative measures of managerial ability, different innovation proxies (patents), change and fixed-effects regressions and subsamples. The effect is stronger in smaller firms and is amplified by stronger corporate governance. Originality/value To the best of the author’s knowledge, this study is the first to provide large-sample evidence linking managerial ability to realized economic returns from innovation. By integrating the resource-based view and upper echelons theory, it highlights managerial talent as a strategic intangible asset in the innovation process. Findings have implications for corporate governance, executive recruitment and innovation policy.