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Motivating innovation in newly public firms

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  • Baranchuk, Nina
  • Kieschnick, Robert
  • Moussawi, Rabih

Abstract

Prior research suggests that executive option grants that do not quickly vest provide managers with better incentives to pursue long-term, instead of short-term, objectives. Previous research also suggests that the pursuit of long-term objectives could be undermined by the risk of early termination. We conjecture that these arguments jointly suggest that managers are better motivated to pursue innovation when they are given more incentive compensation with longer vesting periods for unexercised options and yet some protection from disruptive takeover threats. Our evidence for a sample of newly public firms is consistent with more innovative firms jointly choosing such a combination.

Suggested Citation

  • Baranchuk, Nina & Kieschnick, Robert & Moussawi, Rabih, 2014. "Motivating innovation in newly public firms," Journal of Financial Economics, Elsevier, vol. 111(3), pages 578-588.
    • Handle: RePEc:eee:jfinec:v:111:y:2014:i:3:p:578-588
    DOI: 10.1016/j.jfineco.2013.11.010
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    References listed on IDEAS

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    More about this item

    Keywords

    Innovation; Vesting period; Incentive compensation;
    All these keywords.

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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