Executive Overconfidence And Corporate Innovation Performance

Based on the perspective of executive compensation,this paper uses the data of Shanghai and Shenzhen A-share listed companies from 2011-2015 to explore the effect of executive overconfidence on corporate innovation performance.And further more the moderating effect of executive compensation on the relationship between executive overconfidence and corporate innovation performance has been investigated.The empirical results show that executive overconfidence can significantly improve corporate innovation performance.At the same time,the relationship between executive overconfidence and corporate innovation performance is reliant upon executive compensation as follows:(1)Excutive compensation levels positively moderate the relationship between executive overconfidence and corporate innovation performance;(2)Excutive compensation gaps have a positive moderating effect on the relationship between executive overconfidence and corporate innovation performance.The contribution of this paper mainly concentrates on the following two parts:first,existing studies on executive overconfidence mostly focus on the topics such as over-investment,over-debt,and firm performance.While this paper explores the relationship between corporate innovation performance and executive overconfidence from the perspective of corporate innovation,and so provides a reasonable explanation for why companies are willing to hire overconfident managers;Second,although existing research has studied the relationship between executive overconfidence and corporate innovation performance,and the relationship between the executive compensation and corporate innovation performance respectively,the relationship among these three factors has not been studied.By introducing the factor executive compensation,this paper indicates that under different compensation schemes,the effect of overconfident managers on corporate innovation performance is divergent.The findings of this paper verify the positive effect of executive overconfidence on corporate innovation performance,and indicate that executive compensation has a positive moderating effect.This paper argues that we should look at the benefits and risks brought by overconfident managers to companies in an objective way.Although overconfident managers prefer high-risk projects and tend to make irrational financial decisions,their enthusiasm for challenging projects exactly promotes the innovation output of companies.Therefore,this paper provides new ideas for the rational design of compensation contracts and reasonable appointment of managers.