Executive Equity Incentive Research Articles

The impact of board capital on open innovation with the moderating effect of executive equity incentives

As a predominant global innovation paradigm, open innovation constitutes a pivotal means of enhancing firms’ innovation performance. Scholars and practitioners are increasingly concerned about strategies to strengthen open innovation, but previous research has overlooked corporate governance factors. This study empirically investigates the impact of board capital on corporate open innovation using data from Chinese listed firms (1999–2009) within the resource dependence and upper echelons theory framework, employing the fixed effects model for panel data and the hierarchical regression method. Findings reveal that the breadth and depth of board capital positively affect the breadth of open innovation, though not significantly the depth. Additionally, executive equity incentives enhance the relationship between board capital and open innovation breadth. Robustness checks support these findings. Notably, board capital’s impact is more pronounced in large enterprises and high-technology industries. This study offers practical insights for firms to prioritize board capital considerations in fostering open innovation initiatives.

Directors' and Officers' Liability Insurance and the Digital Transformation of Enterprises: Based on the Empirical Evidence of Listed Companies in China from 2011 to 2021

Amidst the wave of the digital economy, numerous enterprises have commenced the process of digital transformation to address market challenges and fluctuations, as well as to pursue sustainable growth. Directors' and officers' liability insurance (D&O insurance), being an essential instrument of corporate governance, necessitates an empirical investigation to unravel its influence on enterprises' digital transformation. This study selects Shanghai-Shenzhen A-share listed companies from 2011 to 2021 as research subjects to examine the impact of D&O insurance procurement on enterprises' digital transformation and its underlying mechanisms. The findings reveal that the procurement of D&O insurance significantly fosters the progress of enterprise digital transformation, and this conclusion remains robust after employing a series of robustness tests, including the instrumental variable method and DIGT. The mechanism analysis indicates that by elevating the risk-bearing capacity of enterprise managers, the management efficiency of enterprises can be enhanced, thereby motivating supervisory executives to augment the quality of internal control and facilitate the digital transformation of enterprises. Further examination discloses that executive equity incentives and executive responsibility insurance possess complementary effects in promoting enterprise digital transformation, making the subscription of executive responsibility insurance a pivotal factor in enhancing the effectiveness of enterprise digital transformation and fostering high-quality economic development.

Executive equity incentives and corporate digital transformation

Based on a sample of Chinese A-share listed companies from 2005 to 2021, we explore the impact of executive equity incentives on corporate digital transformation. We find that executive equity incentives promote corporate digital transformation, and this effect is more salient for equity incentives granted in the form of stock options than restricted stocks, with a longer exercise period, and more lenient exercise performance conditions. Our findings enrich the research on the economic consequences of executive equity incentives and provide insights for promoting corporate digital transformation.

Too much of a good thing: the dual effect of executive equity incentives on corporate social responsibility performance

PurposeResearch on the effect of executive equity incentives is equivocal. Based on agency theory, some scholars take the convergence of interest logic to highlight the benefits of executive equity incentives. In contrast, others adopt the entrenchment logic to emphasize the increased agency costs. This study attempts to reconcile the debate on executive equity incentives and integrates the opposing views to unveil how executive equity incentives impact corporate social responsibility (CSR) performance.Design/methodology/approachUsing the panel dataset of Chinese A-share listed firms from 2006 to 2022, this study integrates the convergence of interest and entrenchment logic to examine how executive equity incentives affect CSR performance.FindingsWe find that the relationship between executive equity incentives and CSR performance follows an inverted U-shaped form. According to the convergence of interest logic, executive equity incentives reduce agency costs when allocating resources to engage in CSR activities and enable firms to increase their CSR investments, ultimately realizing increased CSR performance. After a threshold, however, the accumulation of extensive equity incentives causes the entrenchment effect, resulting in declined CSR performance. Our empirical results also shed new light on its contingent perspective – the inverted U-shaped relationship is attenuated when firms’ stock liquidity is high.Originality/valueThis study attempts to reconcile the debate on executive equity incentives and integrates the opposing views to unveil the inverted U-shaped relationship between executive equity incentives and CSR performance. Our study opens promising avenues for further research on corporate governance and CSR strategies.

Internationalization of family business and innovation investment: An executive incentive-based perspective

We selected a sample of listed family business in China from 2017 to 2022 to explore the relationship between the internationalized operations of family businesses and corporate innovation investment. It is found that the internationalized operation of family businesses has a positive impact on innovation investment; executive compensation incentives and executive equity incentives positively regulate the impact of the internationalized operation on innovation investment of family businesses.

Does negative environmental performance feedback induce substantive green innovation? The moderating roles of external regulations and internal incentive

AbstractWhen the environmental performance is below the aspiration, will firms make substantive changes? In order to answer this question, based on the behavioral theory of the firm, this paper examines the impact of negative environmental performance feedback on substantive green innovation (GI) and its influencing mechanism. It is found that the negative environmental performance feedback induces substantive GI, which is positively moderated by external regulations (i.e., government environmental regulation and public environmental concern) and internal incentive (i.e., executive equity incentive). Media pressure and risk preference act as mediators in the above promotion effect. Heterogeneity analysis shows that the above promotion effect as well as the moderating effects of external regulations are more pronounced in private firms, while the moderating effect of internal incentive is more pronounced in state‐owned firms. Furthermore, the above promotion and moderating effects are more pronounced after the ESG rating event of SynTao Green Finance Agency. This paper offers new sights into understanding the motives of substantive GI and policy suggestion for promoting firms to achieve sustainable development.

Executive equity incentive plans: Effective golden handcuffs?

We examine the impact of executive equity incentive plans (EEIPs) on the retention of targeted (those subject to EEIPs) and non-targeted (those not subject to EEIPs) executives using a sample of Chinese firms. Our findings suggest that EEIPs help retain executives if we do not distinguish targeted and non-targeted executives. Using a difference-in-differences research design, we find that, on average, targeted (non-targeted) executives in EEIP firms have an approximately 16% lower (43% higher) chance of leaving their current jobs than the average turnover rate of executives in a non-EEIP firm. Additional analysis suggests that 1) the golden-handcuff effect on targeted executives occurs primarily in the first two years of EEIPs, while the push-away effect on non-targeted executives lasts for four years, and 2) non-targeted executives are more likely to leave when they have low compensation.

The Influence of Equity Incentive and its Concentration Degree on Enterprise Investment Efficiency

As an important part of China's modern industrial system, high-tech industry has long-term inefficient investment problems due to the characteristics of high investment demand, high risk and long cycle. As an incentive and constraint mechanism based on the principal-agent theory, equity incentive can effectively reduce the agency cost and improve the investment efficiency of enterprises. Based on the different perspective of equity incentive between senior executives and core technical personnel, this paper takes the sample of equity incentive in 2018-2022 to test the impact of equity incentive on the investment efficiency of enterprises. The results show that equity incentive can effectively improve the investment efficiency, alleviate the investment shortage and restrain the excessive investment; equity concentration plays a negative effect on the relationship between equity incentive and enterprise investment efficiency; compared with executive equity incentives, core technical personnel equity incentives have a more significant effect on improving investment efficiency, Therefore, enterprises should pay attention to improving the level of equity incentive; focus on the influence of equity structure on the utility of equity incentive and prevent excessive equity concentration; when designing equity incentive plans, focus on incentivizing core technical personnel.

Analysis of the motivation and impact of the implementation of the employee stock ownership plan

Equity incentive can be divided into executive equity incentive (Executive Stock Option) and employee equity incentive (Employee Stock Option). Employees here refer to the intermediate managers, core technical personnel and other employees except for the senior executives of the company. The ESOP is a mechanism by which the employees of the company share the ownership of the company by holding the stock or options of the company. From the perspective of the implementation of the employee stock ownership plan motivation, its main theoretical basis can be divided into three categories, respectively is incentive theory (incentive theory, reduce agent costs, attract, retain quality employees and limited to financing constraints, reduce cash pressure), signal theory (undervalued company more inclined to internal equity incentives, let investors aware that the current company price relative to its internal value deviation) and major shareholders self-interest theory. From the theoretical point of view, this paper discusses the possible motives and results of domestic listed companies to launch the stock ownership plan, in order to provide theoretical support for small and medium investors to rationally understand the employee stock ownership plan, and provide regulatory suggestions to the regulatory authorities to be vigilant about the self-interest behavior of major shareholders.

Equity incentives and ESG performance: Evidence from China

Using Chinese A-share listed firms from 2006 to 2021, we investigate the impact of executive equity incentive plans (EEIPs) on corporate environmental, social, and governance (ESG) performance. We find that EEIPs positively affect ESG performance. We also find that options have a stronger incentive effect on ESG performance than restricted stock, and longer valid period and higher vesting targets can enhance the incentive effect of EEIPs on ESG performance. Moreover, the positive impact of EEIPs on ESG performance is stronger for non-SOEs and firms with better external governance.

The Impact of Equity Incentives on the Performance of Listed Companies

With the formal implementation of the Administrative Measures for Equity Incentives of Listed Companies, the scope of equity incentives for listed companies in China has been expanding, and the equity incentive system has been gradually improved. Among them, executive equity incentive and employee equity incentive are two important subjects in the incentive plan, and their respective impacts on corporate performance have also attracted much attention, which part has a greater impact, and whether the two are opposed has become a question discussed by many scholars. Based on human capital theory and entrusted agent theory, this paper selects A-share listed companies that implemented equity incentive plans from 2011 to 2020 as a sample, and uses a fixed-effect regression model to investigate the impact of different equity incentives on company performance. It is found that executive equity incentive can have a positive impact on the company's performance, and executive equity incentive enables them to join the enterprise management decision-making as the "master", share the surplus value of the enterprise with the owner, promote the enthusiasm and creativity of senior executives, reduce the agency cost between shareholders and executives, and meet the needs of long-term development of enterprises. Second, the effect of employee equity incentives is better than that of executives. Employees can only receive the benefits of equity incentives by working hard to meet the conditions for exercise (unlocking). As the most direct participants and executors in the company's business activities, employees have the motivation and ability to work hard to achieve equity incentive conditions and realize their own benefits. That is, the incentive effect of large-scale employee equity incentive is better, and the effect on the performance of listed companies is more significant.

R&D Investment, Executive Incentive, and Financial Performance in GEM: Based on Three-Stage Least Squares Method

China’s GEM (Growth Enterprise Market, also named as ChiNext stock market) enterprises are mainly small and medium-sized enterprises in the start-up stage, which have high-speed growth. This work uses three-stage least squares (3SLS) based on combines system equation to study the impact of technological innovation investment, executive incentive, and enterprise financial performance. The results show that in China’s GEM enterprises, R&D in the current period positively affects financial performance in 1% significance level. R&D of the lag period has a significant negative impact on the financial performance of the current period. Conversely, the financial performance of the current period has a significant negative impact on R&D. While both salary incentive and equity incentive will improve financial performance, executives seem to value short-term interests MORE. Executive equity incentive has a significant negative moderating effect ownership due to ownership structure in GEM is needed to strengthen the control right. This work proposes a new research horizon in GEM in China, and can help the GEM design an effective management mechanism to improve the financial performance of the enterprise.

Exploring the mesomeric effect of executive equity incentives on enterprise innovation: a study in the context of digital transformation

PurposeThe purpose of this study is to explain the following questions: First, whether the executive equity incentive has an impact on enterprise innovation and digital transformation; Second, if there is any influence, whether there is difference between state-owned enterprises and private enterprises in the research conclusions; Third, whether the digital transformation of enterprises has had an intermediary effect between executive equity incentive and enterprise innovation; Fourth, whether the proportion of independent directors in the corporate governance mechanism has a regulatory effect.Design/methodology/approachIn the context of China's promotion of “digital China” construction and high-quality development of economic innovation, this paper takes Shanghai and Shenzhen A-share listed companies in 2011–2019 as a sample, empirically studies the linear and nonlinear relationship between executive equity incentive and enterprise digital transformation and innovation, and further considers the regulatory effect of heterogeneous property rights and the proportion of independent directors, with a view to improving the reform of China's enterprise equity incentive system make contributions to enterprise innovation and digital transformation.FindingsThe results show that executive equity incentive has a positive role in promoting enterprise digital transformation and innovation, and enterprise digital transformation has a positive role in promoting enterprise innovation; Digital transformation of enterprises has a partial intermediary effect between executive equity incentive and enterprise innovation.Originality/valueFirst, it expands the research on the economic consequences of enterprise salary incentive system. Second, it expands the research on the specific role path of enterprise digital economy transformation. Third, provide new ideas for the reform of corporate governance mechanism.

The Impact of Research and Development Investment on Total Factor Productivity of Animal Husbandry Enterprises: Evidence from Listed Companies in China

Improving the total factor productivity (TFP) of animal husbandry enterprises is the key to promoting the sustainable development of animal husbandry. Technological progress is an important driving force for improving the TFP of animal husbandry enterprises, and research and development (R&D) investment determines the speed of technological progress. Based on the data of Chinese animal husbandry enterprises listed on Shanghai and Shenzhen A-shares in China between 2009 and 2022, this article empirically analyzes the impact of R&D investment on the TFP of animal husbandry enterprises and the moderating role of executive incentives in it and discusses the heterogeneity of this impact, using the fixed-effects model. It is found that R&D investment has a significant positive impact on the TFP of animal husbandry enterprises, and the TFP of animal husbandry enterprises increased by 0.00105 for every 1% increase in R&D investment. Equity incentives for executives positively moderated the relationship between R&D investment and the TFP of animal husbandry enterprises, while executive compensation incentives negatively moderated the relationship. Heterogeneity analysis shows that R&D investment has a significant effect on the TFP of non-state-owned animal husbandry enterprises, but has no significant impact on the TFP of state-owned animal husbandry enterprises. The impact of R&D investment on TFP showed a significant promotion in the livestock and poultry breeding and meat product processing industries, but not in the feed production, dairy product processing and animal health industries. R&D investment has a significant effect on the TFP of animal husbandry enterprises in Eastern China and Central China, but has no significant impact on the TFP of animal husbandry enterprises in Western China.

Equity Incentives and Firm Innovation Efficiency: Moderating Role of Ownership Concentration

In order to cope with the new situation and new challenges facing China's economic development, the country proposes to accelerate industrial transformation and upgrading with innovation drive, and lead scientific and technological development with scientific and technological innovation. Manufacturing industry occupies an important share in the national economy, and how to improve the overall competitiveness of China's manufacturing industry and the innovation efficiency of enterprises has become a hot issue of general concern for all sectors of society. Based on innovation theory, principal-agent theory and two-factor incentive theory, this paper systematically investigates executive equity incentives, ownership concentration and innovation efficiency for China's manufacturing industry, and also tests the ownership concentration regulation effect in groups under the perspective of equity optimization. It is found that: (1) Executive equity incentives are significantly and positively related to innovation efficiency. (2) Ownership concentration is significantly and positively related to innovation efficiency. (3) The more significant the promotion effect of executive shareholding on innovation efficiency when the equity is relatively concentrated. This paper can provide a reference for Chinese manufacturing industry to establish a sound incentive mechanism and optimize equity policy.

Why and how executive equity incentive influences digital transformation: the role of internal and external governance

Why and how executive equity incentive influences digital transformation: the role of internal and external governance

Keeping them honest? Broad‐based employee ownership and earnings management

AbstractResearch Question/IssueDoes broad‐based employee ownership limit accrual earnings management?Research Findings/InsightsI run a series of random effect and fixed effect models on a sample of S&P 1500 firms between 2008 and 2019 to show that managers at employee‐owned firms manipulate earnings less than managers at nonemployee‐owned firms. My findings suggest that employee ownership enhances financial transparency and limits the opportunities for managers to misrepresent firm performance.Theoretical/Academic ImplicationsThis study develops and tests theory on employee ownership as a form of internal corporate governance. Equity incentives for executives are typically thought to reduce agency costs. The findings here suggest awarding equity incentives broadly, in which the majority of employees receive equity stakes, may be a more effective method of reducing agency costs.Practitioner/Policy ImplicationsEarnings management and intentional financial misreporting are often a result of siloed information within firms. Broad‐based employee ownership is generally associated with enhanced information flows through greater mutual monitoring and information sharing. Corporate governors interested in reducing managerial malfeasance may find that widely awarding equity to employees is more effective than financially incentivizing individual managers to act in the firm's interests.

Does digital innovation cause better ESG performance? an empirical test of a-listed firms in China

Digital technologies have changed the traditional innovation paradigm. We study the impact of digital innovation on corporate ESG performance using data from China’s A-share listed companies from 2011 to 2021. The results show that (1) digital innovation has a significant and positive impact on ESG performance; (2) digital innovation can improve firm performance and attract the attention of analysts, thereby improving ESG performance; (3) the positive impact of digital innovation on ESG performance is mitigated by corporate financial stability and augmented by institutional investors; and (4) the impact of digital innovation on ESG performance is more pronounced in industries which are nonmanufacturing, industrial digitization, and low-competitive, as well as in firms which are nonstate-owned or enforce executive equity incentives. This study provides a timely assessment of the sustainable value of digital innovation and enriches the research on the impacts of corporate ESG performance.

Institutional Environment, Executive Equity Incentive, and Enterprise Innovation: The Case of China

Abstract The increase in national-level innovation driven by corporate innovation is an inherent requirement for the current shift from high-speed growth to high-quality development in China’s economy. In this study, we empirically analysed the influence of the institutional environment on corporate innovation and its underlying mechanism based on panel data of Chinese A-share listed companies from 2008 to 2016. The empirical results demonstrated that the institutional environment is conducive to the improvement of corporate innovation, and this result is validated by further robustness tests. The analysis of the companies’ subsamples showed that the stimulation effect of the institutional environment on corporate innovation is more significant in Central and Western China than in Eastern China. The role of the institutional environment is also more evident in non-state-owned small and medium-sized enterprises. Further analysis demonstrated that investment in R&D plays a mediator role in the context where the institutional environment promotes corporate innovation, and the executive equity incentives in this process have a moderating effect.

Equity incentives and conforming tax avoidance

AbstractWe examine how executive equity incentives are associated with firms' conforming tax avoidance. Conforming tax avoidance is unique compared to nonconforming tax avoidance in that it decreases tax liabilities by reducing pretax income. Thus, conforming tax avoidance presents a unique set of consequences with important links to both risk and value‐creation incentives. Consistent with risk‐taking incentives increasing conforming tax avoidance, we find that linking executive wealth to stock price volatility (i.e., vega) is positively associated with conforming tax avoidance. We also find that linking executive wealth to stock price (i.e., delta) is negatively associated with conforming tax avoidance. The results of our cross‐sectional tests suggest that the negative association between delta and conforming tax avoidance is predominantly driven by a risk aversion effect rather than a value‐creation effect. Our findings add to the literature on the relation between tax avoidance and executive compensation, as well as the trade‐off between book and taxable income.