Research On Executive Incentive,R&D Manipulation And Its Economic Consequences

The 18th CPC National Congress made a major strategic deployment to implement innovation driven development.As the main constituent unit of China’s market economy,helping listed companies improve their innovation ability is an important starting point for practicing the innovation driven development strategy,and R&D investment is the key guarantee for the implementation of enterprise innovation activities.However,compared with the rapid growth of R&D investment in China in recent years,the independent innovation ability of Chinese enterprises has not been improved synchronously.The outbreak of ZTE in 2018 highlights the practical problem of insufficient independent innovation ability of Chinese enterprises.R&D manipulation is one of the main reasons for the asymmetric development between the level of R&D investment and the growth of innovation ability.On the one hand,speculative manipulation of R&D will reduce the reliability of accounting earnings,distort the relationship between R&D input and output,and reduce the efficiency of R&D resource allocation;On the other hand,R&D manipulation will aggravate the problem of R&D information asymmetry in the capital market and undermine the high-quality development of the market.Therefore,how to identify and manage the R&D manipulation activities of enterprises and alleviate the investment risk caused by R&D information asymmetry is an important measure to optimize the ecological environment of China’s capital market.In the context of the separation of two rights in modern enterprises,compared with shareholders,executives in an information dominant position,as the main decision-makers of R&D decisions,have greater discretion over enterprise R&D activities.Therefore,based on the logical framework of agency theory,enterprise executives have the possibility to use R&D manipulation activities to grab shareholders’ interests and seek personal interests.At this time,establishing an effective internal governance mechanism to promote the convergence of the interests of executives and shareholders has become the key to alleviate the above-mentioned agency conflict.Under the view of contract,a reasonable incentive system for senior executives has played a role of "golden handcuffs" in regulating their rent-seeking behavior.The monetary incentive contract and non monetary incentive contract are the main forms of executive compensation in Listed Companies in China.From the perspective of the effectiveness of salary incentive contract,on the one hand,the short-term monetary salary incentive under the optimal contract view can effectively play the role of corporate governance and improve business performance.On the other hand,the salary incentive closely linked to accounting earnings may induce the opportunistic behavior of senior executives.Similarly,from the perspective of equity incentive,on the one hand,equity incentive under the concept of interest convergence promotes executives to implement strategic decisions that are conducive to the long-term operation and development of enterprises;on the other hand,equity incentive under the concept of trench defense may lead executives to manipulate stock prices based on exercise earnings and infringe upon shareholders’ rights and interests.It can be seen that there are different research conclusions on the effectiveness of executive incentive,and no scholars have discussed the effect of executive incentive from the perspective of R&D manipulation.Then,from the perspective of R&D decision-making,in the face of the monetary salary incentive system with core profit as the main performance evaluation index,will executives create execution opportunities for salary realization through R&D manipulation,or reduce R&D manipulation,and improve the competitiveness of enterprises through substantive R&D,so as to obtain high salary returns?Similarly,under the long-term contract with equity as the incentive object,does the concept of interest synergy play a role in reducing the R&D manipulation of senior executives,or does the concept of trench defense dominate and induce senior executives’ rent-seeking activities?What is the mechanism?This is the key question expected to be answered in this paper.Further,what are the economic consequences of the impact of executive incentive contracts on R&D manipulation activities at the enterprise level and capital market level?What is the impact mechanism?This is another key question that this paper attempts to answer.Based on this,this paper constructs a research framework of "executive incentive-R&D manipulation-economic consequences",takes China’s A-share listed companies from 2009 to 2019 as the research object,investigates the relationship between executive incentive and R&D manipulation,and distinguishes the level of enterprise innovation output and the level of capital market operation efficiency,This paper probes into the economic consequences of executive incentive and R&D manipulation from the perspective of enterprise innovation performance and capital market pricing efficiency.The full text is divided into four parts,including seven chapters.The structure of the article is divided into the following parts.The first part is the introduction.The structure of the article is divided into the following parts.The first part is the introduction.The first chapter includes the research background,research significance,research purpose,and methods,and extracts the research problems;The second part is literature review and theoretical introduction.The second chapter summarizes the literature related to this study,reviews and clarifies the previous research results and shortcomings,and summarizes and introduces the relevant theories of the research theme of this paper on this basis,so as to consolidate the theoretical foundation;The third part is the empirical analysis part,which make a theoretical analysis and empirical test on the economic consequences of executive monetary compensation incentive and R&D manipulation,equity incentive and R&D manipulation,and executive incentive and R&D manipulation;The fourth part is the research conclusions and policy suggestions,that is,the seventh chapter of the text summarizes the research conclusions of the full text,and puts forward corresponding policy suggestions from the institutional level and corporate governance level.The following significance of this research topic are obtained in this paper:(1)By examining the relationship between executive monetary compensation incentive and R&D manipulation and conducting empirical tests,it is found that:first,executive monetary compensation incentive improves the level and tendency of R&D manipulation;Second,in the R&D manipulation activities induced by monetary compensation incentive,executives are more inclined to reduce the real R&D expenditure level to achieve performance standards;Third,the higher internal pay gap and external pay gap will significantly promote R&D manipulation;Fourth,by distinguishing the heterogeneity of internal and external governance environment,it is found that in the internal governance environment,when the level of corporate board governance,independent director governance and internal control governance is high,it can effectively weaken the inducing effect of executive monetary compensation incentive on R&D manipulation;In the external governance environment,when the external audit quality of enterprises,the governance quality of institutional investors and the market process are high,it can also effectively inhibit the opportunistic behavior of R&D manipulation under the incentive of senior executives’ monetary compensation.(2)By examining the relationship between executive equity incentive and R&D manipulation and conducting empirical tests,it is found that:first,executive equity incentive inhibits the level and tendency of R&D manipulation;Second,based on the heterogeneous impact of equity incentive targets on R&D manipulation,the study found that compared with restricted stocks,stock options have a more significant inhibitory effect on R&D manipulation;Third,by distinguishing the heterogeneity of internal and external governance environment,it is found that in the internal governance environment,when the level of corporate board governance,independent director governance and internal control governance is high,it can replace equity incentive to play a governance role in R&D manipulation.At this time,the inhibitory effect of equity incentive on R&D manipulation will no longer be significant;In the external governance environment,when the external audit quality of enterprises,the governance quality of institutional investors and the market process are high,it can also play an alternative role in the governance effectiveness of executive equity incentive.(3)By examining the relationship among executive incentive,R&D manipulation and enterprise innovation performance,it is found that:first,R&D manipulation significantly weakens enterprise innovation performance;Second,executive monetary compensation incentive negatively regulates the relationship between R&D manipulation and enterprise innovation performance,which is manifested in that monetary compensation incentive strengthens the inhibitory effect of R&D manipulation on innovation performance;Third,executive equity incentive positively regulates the relationship between R&D manipulation and enterprise innovation performance,which shows that equity incentive weakens the adverse impact of R&D manipulation on innovation performance.(4)By examining the relationship among executive incentive,R&D manipulation and capital market pricing efficiency,it is found that:first,R&D manipulation significantly improves the synchronization of stock prices and reduces the pricing efficiency of capital market;Second,executive monetary compensation incentive positively regulates the relationship between R&D manipulation and stock price synchronization,which is manifested in that monetary compensation incentive strengthens the adverse impact of R&D manipulation on capital market pricing efficiency;Third,executive equity incentive negatively regulates the relationship between R&D manipulation and stock price synchronization,which is manifested in that equity incentive alleviates the adverse impact of R&D manipulation on the pricing efficiency of capital market.The research contribution of this paper is mainly reflected in the following aspects:(1)It expands the research on the economic consequences of executive incentive.On the one hand,the previous literature on the economic consequences of executive incentive mostly focused on the aspects of performance characteristics and governance characteristics,and has not explored the impact of R&D manipulation on R&D decision-making.On the other hand,although some studies have analyzed the relationship between executive incentive and enterprise innovation behavior,there are different conclusions.Some scholars pointed out that executive incentive can improve the innovation level of enterprises by improving the cost and risk tolerance of executive turnover.Some scholars also pointed out that the excessive incentive caused by enterprises inhibits the innovation activities of enterprises.Based on the key issue of R&D manipulation,this paper combines monetary compensation incentive with equity incentive,explores its impact on R&D manipulation,and makes a useful supplement to the research on the economic consequences of incentive contract.(2)Expand the research on the governance role of R&D manipulation.The existing research on the governance role of R&D manipulation mainly discusses with internal governance roles such as technical independent directors from the perspective of external governance such as auditors and institutional investors.However,as the main decision-maker and executor of R&D decision-making,the existing literature is lack of discussion on the governance role of executives.This paper takes executive incentive as the research focus,examines its impact on R&D manipulation,and deepens the research on the governance role of R&D manipulation.(3)Combined with executive incentive,it enriches the research on the economic consequences of R&D manipulation.The existing research on the economic consequences of R&D manipulation mainly focuses on the level of innovation output and business performance.This paper discusses the relationship between R&D manipulation and enterprise innovation performance from the perspective of patent quality,and investigates the regulatory effect of executive incentive contract,which enriches the research on R&D manipulation and innovation output.In addition,the existing literature lacks to investigate the economic consequences of executive incentive and R&D manipulation from the perspective of capital market operation efficiency.This paper forms a useful supplement to the existing literature from the perspective of capital market pricing efficiency and market operation,Combined with the completeness of executive incentive contract,it provides a reference for how to improve the efficiency of market operation and reduce the level of R&D manipulation.(4)This paper constructs the theoretical analysis and empirical research framework of"executive incentive-R&D manipulation-innovation performance/capital market pricing efficiency".This paper brings executive incentive,R&D manipulation and their economic consequences at the enterprise level and capital market level into the research framework,empirically tests the impact of R&D manipulation on enterprise innovation output and capital market operation under the incentive of differentiated contract,and makes a more systematic theoretical excavation on the economic consequences of executive incentive.