TMT’s Attention towards Financial Goals and Innovation Investment: Evidence from China

Shouming Chen, Kaidi Xu, Luu Thi Nguyen and Guangsheng Yu
Additional contact information
Shouming Chen: School of Economics and Management, Tongji University, Shanghai 200092, China
Kaidi Xu: School of Economics and Management, Tongji University, Shanghai 200092, China
Luu Thi Nguyen: School of Economics and Management, Tongji University, Shanghai 200092, China
Guangsheng Yu: School of Management, Fudan University, Shanghai 200433, China

Sustainability, 2018, vol. 10, issue 11, 1-18

Abstract: Will the top managers’ attention to financial goals such as profit targets, operating expenses or debt payback schedule affect the firm’s innovation investment? The purpose of this study was to examine the relationship between the attention that the top management team (TMT) allocate on financial goals and R&D investment in Chinese firms. The roles of ownership type and company size as moderating effects in the relationship were also analyzed. This study used a panel dataset of 484 firms listed on the Shanghai Stock Exchange from 2010 to 2014. The results show that TMT’s attention to monetary objectives was negatively related to the R&D investment. In the state-owned and large-scale enterprises, the negative relationship between the TMT’s financial orientation and R&D investment is weak compared to that in private companies and smaller enterprises, respectively. Several conclusions have been drawn. First, the attention paid by TMT to financial goals significantly affects the innovation investment of the company. Specifically, when executives press the importance of monetary targets, they reduce innovation investment, given that the effects of firm-specific characteristics are controlled. Second, corporate ownership significantly moderates the relationship. Given the same degree of attention bias toward financial targets, compared with those in private companies, executives in state-owned companies tend to be more willing to invest in corporate innovation activities. Third, as the size of the company increases, the company’s comprehensive strength and ability to resist risks would increase, which in turn raises the willingness to undertake high-cost and long-term-to-realize-benefit innovation activities, thus alleviating the effect of TMT’s pressure on financial performance.

Keywords: attention-based view; echelons theory; financial goals; innovation; R&D investment; TMT attention (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.mdpi.com/2071-1050/10/11/4236/pdf (application/pdf)
https://www.mdpi.com/2071-1050/10/11/4236/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:10:y:2018:i:11:p:4236-:d:183390

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().