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

Rui Cheng, Bart Frijns, Hyeongjun Kim and Doojin Ryu

Economic Systems, 2024, vol. 48, issue 1

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.

Keywords: Compensation structure; Corporate innovation; Chinese market; Option incentives; R&D (search for similar items in EconPapers)
JEL-codes: G30 G32 O31 O32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:48:y:2024:i:1:s0939362523001103

DOI: 10.1016/j.ecosys.2023.101171

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