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Executive Compensation Structure, Economic Cycle, and R&D Investment

Author

Listed:
  • Xuelian Zuo

    (Zhejiang Yuexiu University)

  • Shiwen Luo

    (Zhejiang Financial College)

  • David Yoon Kin Tong

    (International University of Malaya-Wales)

Abstract

The purposes of the paper are as follows: First, explore the impact of executive compensation structure on enterprise research and development (R&D) investment. Second, examining the impact of economic cycle on R&D investment and its effect on the relationship between executive compensation structure and R&D investment in China. Empirical verification is carried out utilizing multiple regression analysis and based on the panel data collected from A-share listed companies in China from 2007 to 2014. The study delivers findings as follows: The higher the proportion of equity return in total executive compensation, the more executives are motivated to consider the enterprise’s long-term value and thus are motivated to increase enterprise R&D investment. Such a relationship is more significantly observed in state-owned enterprises. R&D investment is countercyclical, and the economic cycle weakens the incentive effect of the executive compensation structure on enterprise R&D investment. This study provides a reference to guide China’s listed companies in preparing executive compensation contracts and improving the corporate governance system and a reference to guide the government in supporting R&D investment projects under the current circumstances.

Suggested Citation

  • Xuelian Zuo & Shiwen Luo & David Yoon Kin Tong, 2025. "Executive Compensation Structure, Economic Cycle, and R&D Investment," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(2), pages 8394-8419, June.
    • Handle: RePEc:spr:jknowl:v:16:y:2025:i:2:d:10.1007_s13132-024-02189-0
    DOI: 10.1007/s13132-024-02189-0
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