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Effects of option incentive compensation on corporate innovation: The case of China

Author

Listed:
  • Cheng, Rui
  • Frijns, Bart
  • Kim, Hyeongjun
  • Ryu, Doojin

Abstract

This study examines the effect of option incentives on corporate innovation in a representative emerging and transitioning economy. Using data from China, we show that option incentives have significant positive impacts on two crucial aspects of innovation: inputs and outputs. Innovation efficiency consistently improves after the introduction of option incentives. These positive effects remain when we control for potential endogeneity using difference-in-differences estimation with propensity score matching. Option incentives have more pronounced effects in high-tech firms than in other firms. Our findings suggest that firms’ specific characteristics and needs should be considered when developing incentive policies.

Suggested Citation

  • Cheng, Rui & Frijns, Bart & Kim, Hyeongjun & Ryu, Doojin, 2024. "Effects of option incentive compensation on corporate innovation: The case of China," Economic Systems, Elsevier, vol. 48(1).
    • Handle: RePEc:eee:ecosys:v:48:y:2024:i:1:s0939362523001103
    DOI: 10.1016/j.ecosys.2023.101171
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    More about this item

    Keywords

    Compensation structure; Corporate innovation; Chinese market; Option incentives; R&D;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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