Motivating high-impact innovation: Evidence from managerial compensation contracts

Q1 Economics, Econometrics and Finance

Financial Markets, Institutions and Instruments Pub Date : 2019-05-20 DOI:10.1111/fmii.12115

Bill B. Francis, Iftekhar Hasan, Zenu Sharma, Maya Waisman

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引用次数: 6

Abstract

We investigate the relationship between Chief Executive Officer (CEO) compensation and firm innovation and find that long‐term incentives in the form of options, especially unvested options, and protection from managerial termination in the form of golden parachutes are positively related to corporate innovation, and particularly to high‐impact, exploratory (new knowledge creation) invention. Conversely, non‐equity pay has a detrimental effect on the input, output and impact of innovation. Tests using the passage of an option expensing regulation (FAS 123R) as an exogenous shock to option compensation suggest a causal interpretation for the link between long‐term pay incentives, patents and citations. Furthermore, we find that the decline in option pay following the implementation of FAS 123R has led to a significant reduction in exploratory innovation and therefore had a detrimental effect on innovation output. Overall, our findings support the idea that compensation contracts that protect from early project failure and incentivize long‐term commitment are more suitable for inducing high‐impact corporate innovation.

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激励高影响力创新:来自管理层薪酬合同的证据

我们研究了首席执行官(CEO)薪酬与企业创新之间的关系，发现期权形式的长期激励，特别是未授予期权，以及以黄金降落伞形式的管理终止保护与企业创新呈正相关，特别是对高影响，探索性(新知识创造)发明。相反，非股权薪酬对创新的投入、产出和影响有不利影响。使用通过的期权费用管理条例(FAS 123R)作为期权补偿的外生冲击，对长期薪酬激励、专利和引用之间的联系进行了因果解释。此外，我们发现，在实施FAS 123R之后，期权薪酬的下降导致了探索性创新的显著减少，因此对创新产出产生了不利影响。总的来说，我们的研究结果支持这样一种观点，即防止项目早期失败和激励长期承诺的补偿合同更适合于诱导高影响力的企业创新。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Financial Markets, Institutions and Instruments Economics, Econometrics and Finance-Economics, Econometrics and Finance (all)

CiteScore

1.80

自引率

0.00%

发文量

期刊介绍： Financial Markets, Institutions and Instruments bridges the gap between the academic and professional finance communities. With contributions from leading academics, as well as practitioners from organizations such as the SEC and the Federal Reserve, the journal is equally relevant to both groups. Each issue is devoted to a single topic, which is examined in depth, and a special fifth issue is published annually highlighting the most significant developments in money and banking, derivative securities, corporate finance, and fixed-income securities.