We analyze the effect of the human capital or "quality" of the top management of a firm on its innovation activities. We extract a "management quality factor" using common factor analysis on various individual proxies for the quality of a firm's management team, such as management team size, fraction of managers with MBAs, the average employment-and education-based connections of each manager in the management team, fraction of members with prior work experience in a top management position,

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... average number of prior board positions that each manager serves on, and the fraction of managers with doctoral degrees. We find that firms with higher quality management teams not only invest more in innovation (as measured by R&D expenditures), but also have a greater quantity and quality of innovation output, as measured by the number of patents and citations per patent, respectively. We control for the endogenous matching of higher quality managers and higher quality firms using an instrumental variable analysis where we use a function of the number of top managers who faced Vietnam War era drafts (and therefore had an incentive to go to graduate school to get a draft deferment) as an instrument for top management human capital. We also show that an important channel through which higher management quality firms achieve greater innovation success is by hiring a larger number of inventors (controlling for R&D expenditures), and also by hiring higher quality inventors (as measured by their prior citations per patent record). Finally, we show that firms with higher quality top management teams are able to develop a larger number of both exploratory and exploitative innovations.