CEO risk incentives and firm performance following R&D increases |
| |
Authors: | Carl Hsin-han Shen Hao Zhang |
| |
Institution: | 1. Department of Finance, National Central University, No. 300, Jung-da Rd., Jung-Li 320, Taiwan, ROC;2. E. Philip Saunders College of Business, Rochester Institute of Technology, Rochester, NY 14623, USA |
| |
Abstract: | In this study we analyze how CEO risk incentives affect the efficiency of research and development (R&D) investments. We examine a sample of 843 cases in which firms increase their R&D investments by an economically significant amount over the period of 1995–2006. We find that firms with higher sensitivity of CEO compensation portfolio value to stock volatility (vega) are more likely to have large increases in R&D investments. More importantly, we find that high-vega firms experience lower abnormal stock returns and lower operating performance compared to their low-vega counterparts following the R&D increases. Our main results hold in a variety of robustness tests. The results are consistent with the conjecture that high-vega compensation portfolios may induce managers to overinvest in inefficient R&D projects and therefore hurt firm performance. |
| |
Keywords: | G30 J33 M12 O32 |
本文献已被 ScienceDirect 等数据库收录! |
|