Effects of executive compensation incentive on R&D investments: a behavioural study of corporate governance based on Taiwanese firms. (3rd September 2013)

• Record Type: Journal Article
• Authors: Liu, Weining; Wen, Hsiuling
• Is Part Of: International journal of corporate governance. Volume 4:Number 3(2013)
• Page Start: 260
• Page End: 276
• Publication Date: 2013-09-03
• Subjects: executive compensation -- R&#38 -- D investment -- board composition -- corporate governance -- firm risk -- board outsiders -- Taiwan -- research and development -- motivation -- executive behaviour -- stock–based pay -- cash compensation -- incentives -- innovation risks -- pay justification; Corporate governance -- Periodicals; 658.4
• Languages: English
• ISSNs: 1754-3037

Abstract

From the perspective of corporate governance, the compensation scheme directly motivates executive behaviour, and corporate governance importantly affects the innovative capacity of a firm. Stock–based pay is a powerful tool with which to link an executive's compensation to a company's long–term profitability. However, a question remains regarding whether stock–based pay and cash compensation have different effects on an executive's behaviour in the formulation of firm strategies, particularly those regarding R&D investments. Therefore, this investigation uses two moderating variables, firm risk and board composition to study their moderation of the correlation between executive compensation and the behaviour of executives in making corporate R&D investments. We find stock compensation is more likely to promote innovation in high–risk firms, whereas cash compensation is more likely to do so in low–risk firms. Additionally, in firms with a relatively high outsider board representation, stock–based compensation motivates executives to take innovation risks to justify their pay.