Does pay-for-performance distort researchers’ innovation behavior? Evidence from a quasi-experiment

Ying Wu and Haohan Luo

Applied Economics Letters, 2025, vol. 32, issue 14, 2083-2088

Abstract: Using a policy shock and data on Chinese listed firms, we examine the effect of pay-for-performance on corporate innovation. We find that pay-for-performance reduces invention innovation and increases utility model innovation. These findings remain valid after a battery of robustness tests. Furthermore, researchers obtain higher wages from the production of more lower-quality innovation outputs. The results show that pay-for-performance distorts researchers’ innovation behaviours and leads researchers to focus on low-risk and less innovative projects, thus lowering the level of innovation quality.

Date: 2025
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DOI: 10.1080/13504851.2024.2332537

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