An Empirical Study On Managerial Discretion And Its Relationship With R&D Investment

R & D investment is an important key of maintaining competitive edge and improving the innovation and technology-based capabilities for firms. Managerial discretion is the latitude of action which managers have in making decisions and taking actions, which refers to affect important organizational outcomes, which allows managers to obtain effective control over organizational resources. At present, few scholars study the relationship between managerial discretion and R&D investment.This article reviewed the theory of managerial discretion and tested the correlations between corporate R&D investment intensity and the discretionary power of CEO by using the data from the listed companies in China, which has a certain significance. This paper first provided an overview of the current studies and descried the theories of the influencing factors about the R&D investment, the managerial discretion and their relations. From these studies, the author found that the establishment of the measurement index system of managerial discretion is very important in the research about the relations between managerial discretion. Consequently, this paper established a new measurement system of managerial discretion based on previous studies. In the new index system, managerial discretion is divided by position power, expert reputation power and operation power. Position power is from the organization's formal structure and hierarchical authority system, whose measure is the manager's representation and leadership on the Board. Expert reputation power ensure the implementation of the formal power, whose measure is the manager's relative compensation, education, the number of the part-time jobs in the company and the number of the part-time jobs outside the company. Operation power reflects the amount of the key resource that manager could allocate in the company, which the manager can independently control. The measure of the index is the ratio of the operating capital and the ratio of the currency funds. The establishment of the new measurement index system is an innovation of this paper.Then, this paper theoretically analyzed the relationship between managerial discretion and R&D investment based the perspective of the manager's utility. If manager is committed to seek control power, they are inclined to support R&D activities than large shareholders. To gain more benefits from the control power, if the managers have more discretionary power, they will increase the corporate R&D investment as they want. Correspondingly, R&D investment could bestows broader latitude of action and scope of operation power to managers, which can heighten the level of managerial discretion. Therefore, managerial discretion has positive correlation with corporate R&D investment.Then, this paper empirically tested the new measurement index system of managerial discretion and the relationships between managerial discretion and R&D investment by using SPSS for data processing and analysis by factor analysis and regression analysis, whose samples are from the manufacturing and listed companies in China. This is another innovation of this paper. According to the empirical test results, the new measurement index system is feasible and managerial discretion has positive correlation with the R&D investment intensity.Finally, this paper basing on the empirical test put forward that if the firm's R&D investment is inadequate, the level of managerial discretion is heighted by loosing the supervision and if the firm's R&D investment is excessive, the level of managerial discretion is constrained by strictly limiting the autonomy of the manager.