Executive risk incentives, product market competition, and R&D

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

Prior studies have examined the relation between product market competition (PMC) and research and development (R&D) investments, while the impact of executive risk incentives on this relation remains unexplored. In this study, we find that Vega (the sensitivity of executives’ wealth to stock return volatility) weakens the negative relation between PMC and R&D. We also find that Vega strengthens the negative relation between PMC and firm performance when R&D investments grow higher. In sum, our results suggest that high-Vega compensation portfolios in competitive environments may induce executives to overinvest in R&D projects, therefore hurting firm performance.

Original languageEnglish
Pages (from-to)133-156
Number of pages24
JournalFinancial Review
Volume56
Issue number1
DOIs
Publication statusPublished - Feb 2021

Keywords

  • R&D
  • executive risk incentives
  • firm performance
  • investment efficiency
  • product market competition

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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