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Empirical Evidence on How CEO Option Incentives Spur Corporate Innovation from Panel Analysis with Lagged Incentives

In: Proceedings of the 2026 11th International Conference on Financial Innovation and Economic Development (ICFIED 2026)

Author

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  • Yuchen Luo

    (Shanghai Normal University, School of Finance and Business)

Abstract

This study examines the real effects of Chief Executive Officer (CEO) option incentives on corporate innovation output, assessing whether this contractual instrument can effectively bridge the inherent tension between managerial risk aversion and the uncertainty inherent in innovation activities. Based on data from U.S.-listed companies from 1993 to 2021, the research systematically investigates the immediate impact of option incentives on patent applications and their sustained, cross-period effect on patent grants. The empirical findings reveal that option incentives significantly promote corporate innovation, and this effect persists for up to two years after the grant. Further analysis shows that this effect is not universal but is strictly limited to industries with greater suitability for option contracts, such as technology-intensive sectors, and is more pronounced in sub-samples of larger firms and those with higher leverage. These findings confirm that the relationship between option incentives and innovation output is more likely to be a context-dependent causal relationship than a mere correlation. This study deepens the understanding of how executive compensation design influences corporate innovation strategy.

Suggested Citation

  • Yuchen Luo, 2026. "Empirical Evidence on How CEO Option Incentives Spur Corporate Innovation from Panel Analysis with Lagged Incentives," Advances in Economics, Business and Management Research, in: Xiongfeng Pan & Huaping Sun & Abdul Rauf & Md Rabiul Islam & Liew Chee Yoong (ed.), Proceedings of the 2026 11th International Conference on Financial Innovation and Economic Development (ICFIED 2026), pages 436-449, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6239-642-5_43
    DOI: 10.2991/978-94-6239-642-5_43
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