CEOs’ educational background and investments in software

ABSTRACT

In the latter half of Japan’s Two Lost Decades (1990–2010), Japanese firms failed to undergo a thorough information and communications technology (ICT) revolution. In this study, we investigate the most likely cause for this situation and find that chief executive officers (CEOs) in Japanese companies simply did not know how to utilize the new equipment including ICT capitals. We estimate the impact of CEOs’ educational backgrounds(assessed based on their alma mater’s fame) on investments in software by using a compiled dataset that included Japanese listed firms with panel fixed effects models and a generalized method of moments. We find significant evidence that an increase in CEOs’ educational background raises their investment in software. We also revealed that a lack in CEOs’ knowledge of new equipment could be an obstacle for introducing new equipment and, consequently, could lead to loss of competitiveness.

KEYWORDS:

• Two lost decades
• ICT revolution
• GMM
• ICT investment

JEL CLASSIFICATION:

• L25
• O33
• M15

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Bugamelli and Pagano (2004), Giunta and Trivieri (2007) investigate the similar situation in Italy.

² Inui and Kim (2018) conducted a research on a similar topic, where they captured the variety of investment in ICT by using information on foreign firms’ management participation.

³ This study used a database provided by the Development Bank of Japan on financial information of listed companies.

⁴ The Toyo Keizai company handbook series, which specializes in information on executive officers, provides CEOs’ educational background, which enables us to identify from which university and when they graduated.

⁵ We used universities’ Hensachi data provided by Benesse Corporation, accessed inDecember2017.

⁶ Because we use First-Difference estimation, firm size and firm age are basically controlled.

⁷ Inclusion of CEOs’ educational background at department level such as financial education or technical education into the model as in Malmendier and Tate (2005) did not yield any significant result.

⁸ This is confirmed in our dataset.

Additional information

Funding

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.