CEO Change, Managerial Discretion And R&D Investment

Research and Development investment serves as a key link in improving modern companies’ independent innovation and market competition. Managers have realized the importance of R&D investment for the growth of the companies as the market competition leads to the increasing shrink of earnings. With the rapid development of market economy, the constantly expanding scale and the increasing complex governmental environment, in modern company governance structure, CEO plays a vital role in the strategic change and decision- making, which makes it become the focus of the companies. Managerial discretion means the action space of a manager in the decision- making of the company, and this kind of action space qualifies the manager for the de facto control to affect all aspects of a company, including the strategy of R&D investment. Presently, the increasing of CEO changes in the world and the influence it brings to a company’s organization and strategy offers new matching environment for a new ma nager to make decisions. In these cases, it is of great practical significance to study the correlation of the C EO changes, the managerial discretion and the R&D investment.In this paper, the stock A listed equipment manufacturing companies of Shanghai and Shenzhen Securities Exchange from 2007 to 2013 are taken as a sample to discuss the correlation of the CEO changes, the managerial discretion and the R&D investment. First, the related theories are represented, the logical relationship of the CEO changes, the managerial discretion and the R&D investment are discussed, and the research paradigms are built. Then, combining the actual situation of the equipment manufacturing companies, research hypothesis are put forward and multiple regression model are established. In addition, softwares including Eviews7.0 are employed to analyze the sample data. The related empirical conclusions about the relations among the C EO changes, the managerial discretion and the R&D investment are made: the Research and Developme nt investment of the equipment manufacturing companies in C hina is insufficient, the de facto control of managers is positive correlated with the R&D investment, the CEO changes do good to the relations between the de facto control of managers and the R&D investment. Besides, by analyzing the samples of state-owned and non-state-owned companies, the author finds that in China’s equipment manufacturing companies, the relations between the de facto control of managers and the R&D investment of state-owned companies are remarkably positive, while that of the non-state-owned companies are not. The CEO changes of state-owned companies enhance the effects of the managers’ de facto control over the R&D investment, while in the non-state-owned companies’ sample, it leads to the opposite side, and there is difference between these two in terms of the effects. Finally, bade on the conclusions, some measures and advice are advanced.