The Research On R&D Investment And Executive Compensation In Chinese Listed Companies

Agency conflicts relationship between senior management and shareholders has always been a hot academic research filed. Studies have shown that behavior-based incentive (BBI) will help alleviate conflicts agency problem between executives and shareholders, as well as influence R & D investment decisions of executives. When the results of executive compensation is linked to R& D investment behavior rather than the outcome of R & D investment, executives need not bear the compensation and employment risk associated with the unpredictable consequences of innovation efforts, they would be more likely to devote resources to risky projects with potentially high, but uncertain returns, which can enhance the company’s technological innovation and competitiveness. This paper explores the incentive effect of R & D intensity of China’s listed companies to its executives.This paper studies the evolution of Chinese executive incentive system at first. Building on the agency view of corporate governance and technological innovation theory, I propose the hypothesis on the relationship between Chinese listed companies R & D intensity and executive’s incentive. Using a sample of 1028 firms from 21 industries in Chinese listed companied, we find that executive’s salary is closely linked to company’s R&D investment. Our result shows that R & D intensity’s incentives is high for executives in high-tech companies, SOE, high ROE companies and high executive’s power companies than non-high-tech companies,non-SOE, low ROE companies and low executive’s power companies.Most of current research pays attention to the effect of executive compensation on company’s R & D intensity. This paper takes R & D intensity as a factor affecting executive compensation, to explore its incentive to executives. This paper fills the gaps in academic research. Meanwhile, this paper divide the sample into high-tech companies and non high-tech companies, high ROE companies and low ROE companies, high executive’s power companies and low executive’s power companies, SOE and non-SOE in order to study the impact of R & D investment on executive compensation on different circumstance. The results of this study can help different type of companies develop appropriate executive compensation incentives system.