Finance Faculty Publications and Presentations

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

Document Type

Article

Publication Date

2-2021

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.

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© 2020 The Eastern Finance Association.

https://onlinelibrary.wiley.com/share/R7PQTVT8VDIBQHDFKSFC?target=10.1111/fire.12246

Publication Title

Financial Review

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