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CEO Incentives, Takeover Protection and Corporate Innovation
Author(s) -
Mazouz Khelifa,
Zhao Yang
Publication year - 2019
Publication title -
british journal of management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.407
H-Index - 108
eISSN - 1467-8551
pISSN - 1045-3172
DOI - 10.1111/1467-8551.12330
Subject(s) - incentive , business , shareholder , equity (law) , enterprise value , industrial organization , sample (material) , compensation (psychology) , monetary economics , competition (biology) , product market , executive compensation , valuation (finance) , corporate governance , accounting , economics , finance , microeconomics , psychology , ecology , chemistry , chromatography , political science , psychoanalysis , law , biology
This study examines the effects of CEO equity‐based compensation and anti‐takeover provisions on corporate innovation. Using a large sample of US firms over the period 1996–2014, we find that long‐term incentives have a stronger influence on innovation when combined with takeover threats. We also show that equity‐based compensation is more likely to spur innovation for small firms and firms in industries with high product market competition and innovation pressure. However, this effect is somewhat weaker in the presence of anti‐takeover provisions, suggesting that takeover protection encourages managerial shirking even when external competition is high. Finally, in addition to the existing evidence on the valuation effect of CEO equity‐based compensation, we identify innovation as an important channel through which managerial incentives can enhance firm value. Our results have potential implications for shareholders, managers and policymakers.