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

Abstract

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.