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Relative CEO Underpayment and CEO Behaviour Towards R&D Spending

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  • Eric A. Fong
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    Arguments based on labour market theory suggest that there may be CEO behavioural issues related to pay deviations from the labour market rate for CEO pay; however, few studies examine this phenomenon. This study attempts to address such behavioural issues by examining the influence of relative CEO underpayment on reductions in R&D spending, the differences in this relationship between firms in high R&D intensive versus low R&D intensive industries, and the moderating affect of ownership structure on the CEO underpayment and R&D spending relationship. Results suggest that relative CEO underpayment is associated with reductions in R&D spending in low R&D intensive industries and increases in R&D spending in high R&D intensive industries. Also, greater relative CEO underpayment leads to greater reductions in R&D spending in manager-controlled organizations as compared to owner-controlled organizations. This study provides evidence that pay deviations may, in fact, affect certain CEO behaviours, specifically relating to innovation. Copyright (c) Blackwell Publishing Ltd 2009.

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    Article provided by Wiley Blackwell in its journal Journal of Management Studies.

    Volume (Year): 47 (2010)
    Issue (Month): 6 (09)
    Pages: 1095-1122

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    Handle: RePEc:bla:jomstd:v:47:y:2010:i:6:p:1095-1122
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