Abstract
A performance-based CEO compensation plan can help organisations incorporate an innovative culture. Concentrated ownership structure can enable shareholders to play a key role in the strategic decision-making of a company by exercising their statutory rights. Purpose of this paper is to understand the moderating impact of ownership concentration on the nexus of CEO compensation and firm innovation relationship. Data about all A-share non-financial companies listed at the Shanghai Stock Exchange and Shenzhen Stock Exchange is obtained from CSMAR database of China. Panel data analysis by using year and industry effects indicates that CEO compensation positively and significantly affects organisational innovation. Furthermore, ownership concentration as measured by top 5 shareholders strengthens this relationship. Findings of this study can help investors, policymakers and creditors to understand the importance of CEO compensation towards innovation in the presence of a concentrated ownership structure. Chinese economy is the fastest growing developing economy and therefore, Chinese contextual findings may be selected as a benchmark for other developing countries.
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