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|Title:||R&D Horizon and CEO Compensation|
R&D horizon;CEO compensation;Managerial incentives;R&D uncertainty
|Issue Date:||2014-02-19 15:47:32 (UTC+8)|
This study investigates the impact of the long-lived nature of R&D investment on CEO compensation, and provides evidence that the R&D horizon is contract-relevant. First, this study documents that firms with a longer R&D payoff period tend to adjust the association between CEO cash compensation and changes in R&D expenditures upward to shield CEO cash compensation from the negative earnings impact of R&D expenses as well as to provide compensation for the risks embedded in such R&D investment, while increasing option compensation to induce R&D investment in good projects. On the other hand, firms with a short R&D payoff period tend to treat R&D expenditures as an expense when rewarding CEOs. In addition, the results show that CEO compensation is less sensitive to accounting returns when R&D has a longer horizon, suggesting that the R&D horizon reduces the desirability of accounting return as a performance measure. Finally, I find that, for new CEOs, compensation committees tend to strengthen the association between R&D horizon and the sensitivity of CEO compensation to R&D expenditure in order to encourage new CEOs to invest in long-lived R&D and reduce the association between R&D horizon and the sensitivity of CEO cash compensation to accounting returns since accounting performance in the earlier stage of the successor's tenure is more likely to reflect the R&D effort of the predecessor CEO when R&D has a long horizon.
|Relation:||會計評論, 53, 109-138|
|Appears in Collections:||[會計學系] 期刊論文|
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