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1 – 10 of over 25000Ning Xu, Di Zhang, Yutong Li and Yingjie Bai
Green technology innovation is the organic combination of green development and innovation driven. It is also a powerful guarantee for shaping sustainable competitive advantages…
Abstract
Purpose
Green technology innovation is the organic combination of green development and innovation driven. It is also a powerful guarantee for shaping sustainable competitive advantages of manufacturing enterprises. To explore what kind of executive incentive contracts can truly stimulate green technology innovation, this study aims to distinguish the equity incentive and reputation incentive, upon their contractual elements characteristics and green governance effects, and then put forward suggestions for green technology innovation accordingly.
Design/methodology/approach
This study establishes an evaluation model and uses empirical methods to test. Concretely, using data from A-share listed manufacturing companies for the period from 2007 to 2020, this study compares and analyzes the impact of equity and reputation incentive on green technology innovation and explores the relationship between internal green business behavior and external green in depth.
Findings
This study finds that reputation incentives focus on long-term and non-utilitarian orientation, which can promote green technology innovation in enterprises. While equity incentives, linked to performance indicators, have a inhibitory effect on green technology innovation. Internal and external institutional factors such as energy conservation measures, the “three wastes” management system, and environmental recognition play the regulatory role in the relationship between incentive contracts and green technology innovation.
Originality/value
Those findings validate and expand the efficient contracting hypothesis and the rent extraction hypothesis from the perspective of green technology innovation and provide useful implications for the design of green governance systems in manufacturing enterprises.
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Zhan Furner, Keith Walker and Jon Durrant
Krull (2004) finds that US multinational corporations (MNCs) increase amounts designated as permanently reinvested earnings (PRE) to maximize reported after-tax earnings and meet…
Abstract
Krull (2004) finds that US multinational corporations (MNCs) increase amounts designated as permanently reinvested earnings (PRE) to maximize reported after-tax earnings and meet earnings targets. We extend this research by examining the relationship between executive equity compensation and the opportunistic use of PRE by US MNCs, and the market reaction to earnings management using PRE designations. Firms use equity compensation to incentivize executives to strive for maximum shareholder wealth. One unintended consequence is that executives may engage in earnings management activities to increase their equity compensation. In this study, we examine whether the equity incentives of management are associated with an increased use of PRE. We predict and find strong evidence that the changes in PRE are positively associated with the portion of top managers' compensation that is tied to stock performance. In addition, we find this relationship to be strongest for firms that meet or beat forecasts, but only with the use of PRE to inflate income, suggesting that equity compensation incentivizes managers to opportunistically use PRE, especially to meet analyst forecasts.
Further, we provide evidence that investors react negatively to beating analysts' forecasts with the use of PRE, suggesting that investors find this behavior opportunistic and not fully convincing. This chapter makes an important contribution to what we know about the joint effects of tax policy, generally accepted accounting principles, and incentive compensation on the earnings reporting process.
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Dong Wang and Desheng Wu
China has formally implemented equity incentive for more than 10 years; thus, a considerable number of equity incentive programs has entered the exercise period. This means that…
Abstract
Purpose
China has formally implemented equity incentive for more than 10 years; thus, a considerable number of equity incentive programs has entered the exercise period. This means that it is time to conduct a comprehensive analysis of the incentive effects of equity incentive throughout the whole implementation phase. The purpose of this paper is to examine the relationship between equity incentive, enterprise’s risk taking and risk decisions in China.
Design/methodology/approach
Using sensitivity of executives’ wealth and stock price (Delta) to measure the alignment effect and using sensitivity of executives’ wealth and stock return volatility (Vega) to measure the risk-taking effect, this paper aims to empirically test the relation of equity incentive and enterprise’s risk taking and risk decisions.
Findings
The authors find that Vega is positively related to risk taking; however, this improvement was mainly reflected in the private enterprises rather than state-owned enterprises. In terms of corporate policy choice, the authors find that Vega is positively related to firm focus and leverage. But, they have not found that Vega can promote R&D investment.
Originality/value
Existing studies have mostly concerned about the executives’ opportunistic behavior; however, analyses of the positive effect of equity incentive are limited. The authors use a combination of risk-taking incentives and alignment incentives to test the relationship between equity incentive and risk taking.
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Baohua Liu, Wan Huang and Lei Wang
Based on the institutional background of mandatory requirement of performance-based executive equity incentives, this paper aims to investigate the impacts of executive equity…
Abstract
Purpose
Based on the institutional background of mandatory requirement of performance-based executive equity incentives, this paper aims to investigate the impacts of executive equity incentives, vesting periods and vesting performance conditions on corporate innovation.
Design/methodology/approach
The empirical analysis is based on the detailed data of equity incentives in China’s listed companies from 2006 to 2014, the Tobit method is implemented to estimate the regression coefficients, and the instrumental variable (IV) approach, Heckman two stage regression, propensity score matching and difference-in-difference models are adopted to solve the problem of endogeneity in several robust tests.
Findings
This paper documents that equity incentives and vesting periods are significantly and positively related to corporate innovation measured by R&D investment and patent applications, yet requirements on vesting performance impede corporate innovative activities. Specifically, compared with non-equity incentive companies, the R&D investment and the number of patent applications of equity incentive companies are 40 and 46.2 per cent higher, respectively. A one year increase in equity incentive duration can correspondingly increase the R&D investment by 15 per cent and the patent applications by 18.3 per cent. However, a one standard deviation increase in industry-adjusted ROE target reduces corporate R&D investment by 5 per cent and the patent applications by 8.39 per cent. The main empirical findings still hold after several robust tests.
Research limitations/implications
This paper confirms that the impact of performance-based compensation system on corporate innovation depends on its structure. Specifically, the empirical findings suggest that equity incentive plans being correctly designed can enhance corporate innovative activities, but myopic managers will damage the corporate innovation.
Originality/value
This paper investigates the influence of equity incentive structure on equity incentive effect based on the institutional background of mandatory requirement of performance-based executive equity incentives. It provides an opportunity to understand the mystery of equity incentives, which helps to enrich the structure of equity incentive theoretically. The empirical evidence confirms the importance of tolerating short-term failure and extending the horizon of managerial decision-making on promoting innovation. Overall, the research indicates that only well-designed equity incentive plans can promote innovation, which contributes to regulators and practitioners to form a rational understanding of the premise of equity incentives in promoting innovation and provides a reference for their decision-making.
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Zili Su and Constantinos Alexiou
On the basis of corporate governance and agency cost theory, using the fifth sub-indicator of Fan et al. China Marketization Index as the regional investor protection index (IPI)…
Abstract
Purpose
On the basis of corporate governance and agency cost theory, using the fifth sub-indicator of Fan et al. China Marketization Index as the regional investor protection index (IPI), the purpose of this paper is to explore the impact of equity incentives and regional investor protection on corporate payout policies and corporate performance.
Design/methodology/approach
This paper establishes ordinary least squares regression model to examine interactions between the effects of equity incentives and regional investor protection upon firms’ dividend payouts. In addition, the authors also explore whether the joint effects on payouts are altered in the presence of growth opportunities, and investigate the effects of interactions between equity incentives and regional investor protection on corporate performance.
Findings
The authors observe that firm managers appear to abuse equity incentives by increasing dividend payouts. However, regional investor protection can potentially restrain such behavior. The restraining effect depends on the firms’ growth opportunities, on the basis of which the effect on cash (stock) dividends is found to be weaker (stronger) in high-growth firms – and stronger (weaker) in low-growth firms. Further evidence indicates that the restraining effect of regional investor protection on selfish dividend-related behavior encouraged by equity incentives may also prove valuable in encouraging exploitation of these incentives so as to enhance corporate performance.
Practical implications
Since reforming investor protection laws and improving judicial quality are difficult and lengthy at a country level. Improving regional levels of investor protection, however, seems more feasible and effective. Through measures encouraging the development of intermediaries, increases in the number of lawyers – all of which seem likely to constrain behavior harmful to the interests of investors – the provincial administrations can reasonably expect to contribute toward improvements in the performance of firms and the development of the economy in their region. This paper provides encouragement to regional policy makers in China and in other developing countries.
Originality/value
This paper uses a regional index of investor protection to study the impact on corporate dividends and performance, in contrast with most previous studies, which have examined these issues at country or individual firm levels. The use of a regional-level investor IPI in this paper therefore fills a gap by coming in between the country- and firm-level indicators typically used in previous research, thus providing a new perspective on investor protection issues.
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Shifang Zhao, Xu Jiang and Yoojung Ahn
Research 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…
Abstract
Purpose
Research 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/approach
Using 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.
Findings
We 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/value
This 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.
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Ya-ru Yang, Xiao-lin Han, Xin Wang and Jing-yi Yu
Based on the principal–agent and stakeholder theories, this study aims to put forward an intermediary model to verify the intermediary role of corporate social responsibility…
Abstract
Purpose
Based on the principal–agent and stakeholder theories, this study aims to put forward an intermediary model to verify the intermediary role of corporate social responsibility (CSR) in executive equity incentives and corporate innovation performance to improve corporate innovation performance.
Design/methodology/approach
The 2012–2018 A-share listed companies’ disclosure of executive equity incentives data was used as the research sample. This study used CSR as an intermediary to explore the relationship between executive equity incentives and corporate innovation performance. A verification analysis was carried out.
Findings
The research results show that: a positive correlation exists between executive equity incentives and corporate innovation performance, and executives’ reasonable equity incentives can promote the growth of corporate innovation performance. A positive correlation exists between executive equity incentives and CSR. Implementing equity incentives for executives can stimulate their motivation to assume CSR. A positive correlation exists between CSR and corporate innovation performance. The more a company fulfills its social responsibility, the more it can promote the improvement of corporate innovation performance. CSR plays a mediating role between executive equity incentives and corporate innovation performance. CSR promotes executive equity incentives’ impact on corporate innovation performance and exerts a “complete mediating effect” between the two.
Research limitations/implications
The number of samples and the time span of samples can be expanded in the future. This research has tested the mediating effect of CSR, but other mediating variables may play a role in the process of executive equity incentives in promoting corporate innovation performance. Further research should be conducted to explore the mediating effect of financing constraints and media attention on corporate innovation performance. This study only verifies the influence of equity incentives on CSR and innovation performance of senior executives. In the future, other incentive methods should be explored, such as salary incentives.
Practical implications
Foreign research on equity incentives has matured, but the experience of foreign countries cannot necessarily produce the expected effect in China. More than ten years have passed since the China A-share market began implementing equity incentives on December 31, 2005. As of December 31, 2017, about one-third of enterprises in the high-tech industry that had introduced equity incentives had stopped implementing the policy. Data from 2012 to 2018 were selected to analyze the relationship between executive equity incentives, CSR and corporate innovation performance to explore the influence mechanism of equity incentives. This study provides a comprehensive theoretical framework to examine the interaction among executive equity incentives, CSR and corporate innovation performance. Because most previous studies have focused on the relationship between executive equity incentives, CSR and corporate innovation performance, they are rarely been used as an intermediary variable to explore the impact of executive equity incentives on corporate innovation performance. This study explores the impact of executive equity incentives on corporate innovation performance under the influence of CSR. Moreover, this study explores the mediating role of CSR in corporate governance, which provides a new perspective for CSR research and verifies relevant literature on the mediating effect model.
Social implications
Research countermeasures and suggestions: the research results are significant for enterprises implementing executive equity incentives, fulfilling CSR, enhancing corporate reputation, improving corporate innovation performance and ultimately obtaining market competitiveness. Therefore, the following suggestions are proposed: establish and improve the executive equity incentive mechanism and strengthen the promotion effect of executive equity incentives in CSR and corporate innovation performance. Strengthen the awareness of enterprises to actively fulfill CSR and give full play to the role of CSR in promoting corporate innovation performance. Improve the profitability of enterprises and focus on the promotion effect of enterprise profitability on corporate innovation performance.
Originality/value
This study focuses on executive equity incentives and introduces CSR as an intermediary variable to explore the influence path of executive equity incentives on corporate innovation performance. Based on the research results, this study takes targeted measures to improve corporate innovation performance and maintain its healthy growth of corporate innovation performance. This is significant in enhancing enterprises’ core competitiveness and promoting the enterprise economy’s sustainable development. Meanwhile, the enterprise has significant reference value in actively fulfilling its CSR and realizing its stable and healthy development.
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The purpose of this paper is to investigate the impacts of equity incentive on stock pricing efficiency, as well as the institutional investors’ response to equity incentive and…
Abstract
Purpose
The purpose of this paper is to investigate the impacts of equity incentive on stock pricing efficiency, as well as the institutional investors’ response to equity incentive and its role in stock pricing efficiency.
Design/methodology/approach
Using a sample of 1,842 companies that announce implementing equity incentive schemes during the period 2009-2018, the authors compare the pricing efficiency between the firms with equity incentive and those without equity incentive, and companies that implement equity incentive before and after the implementation of equity incentive by using multiple regression and propensity score matching -DID (difference in difference) method. In addition, the multiple regression model is built to test the response of institutional investors to equity incentive and its role in the efficiency of stock pricing.
Findings
The empirical results indicate that a company’s stock price is influenced more by firm-specific information than systematic factors after it announces a stock-based compensation scheme. Institutional investors respond positively to companies that implement equity incentives. Among the companies that have implement equity incentive, the higher the shareholding ratio of institutional investors, the higher the efficiency of stock pricing.
Originality/value
The authors innovatively establish a connection between the implementation of equity incentive and the operation of stock market. The results imply that besides alleviating the agency problem, equity incentives can also improve the efficiency of stock pricing, which provide empirical evidence to support the positive effect of equity incentive.
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This study investigates whether listed firms using equity incentive plans (EIPs) adopt more conservative accounting in China's unique corporate setting.
Abstract
Purpose
This study investigates whether listed firms using equity incentive plans (EIPs) adopt more conservative accounting in China's unique corporate setting.
Design/methodology/approach
Based on a sample of 2,243 listed firms and 9,950 firm-year observations for the period of 2008–2017, this study employs piecewise cross-sectional regression models with year and industry fixed effects to examine the associations proposed in the research hypotheses.
Findings
This study finds a positive relationship between the adoption of EIPs and accounting conservatism in listed Chinese firms. Further analyses reveal that this positive relationship is more pronounced when listed Chinese firms use restricted stock units (RSUs), instead of stock options, in their EIPs.
Research limitations/implications
Unlike many early studies, this paper empirically investigates the impacts of two different types of equity incentives – stock options and RSUs – and thus contributes to accounting and corporate governance literature by providing a better understanding of the impacts of different types of equity incentives on financial reporting quality. However, this study does not consider other alternative equity incentive measurements because of the limited data regarding Chinese firm's executive compensation.
Practical implications
This study offers investors and policymakers in China some insight into how accounting conservatism in listed firms might be shaped by equity incentives used in their managerial compensation schemes.
Originality/value
This study is one of the few that examines the effects of using equity incentives in a large emerging market. It offers support for the view that the recent introduction of policies on EIPs by the Chinese government has an overall positive impact on listed firm's financial reporting quality, as reflected by greater degrees of accounting conservatism.
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Jianfei Zhao, Thitinan Chankoson, Wenjin Cheng and Anan Pongtornkulpanich
A green innovation strategy is an important step for enterprises to balance economic and environmental. As the executors of strategic decisions, the attitude and capabilities of…
Abstract
Purpose
A green innovation strategy is an important step for enterprises to balance economic and environmental. As the executors of strategic decisions, the attitude and capabilities of senior managers determine the effectiveness of implementing green innovation. Therefore, this paper aims to explore the relationship between executive compensation incentives and green innovation.
Design/methodology/approach
Based on the data of heavily polluting enterprises listed in China's A-share market from 2015 to 2020, this study constructs an OLS model with fixed effects of time and industry, and uses the mediation three-step method to verify the correlation between executive compensation incentives, innovation openness and green innovation. Meanwhile, the grouping regression was used to test the moderating effect of environmental regulation on executive compensation incentives.
Findings
The empirical results show that executive salary incentives promote green innovation and equity incentives inhibit green innovation; the openness breadth partially mediates the relationship between salary incentives, equity incentives and green innovation, while the openness depth only partially mediates the relationship between equity incentives and green innovation; and environmental regulation positively moderates executive incentives.
Research limitations/implications
Due to sample selection and variable measurement, the study lacks certain generality. Therefore, future research needs to further analyze the internal factors affecting green innovation from multiple dimensions.
Practical implications
This study provides a new evidence for analyzing how executive compensation measures affect green innovation, and further enhances the mediating mechanism of open innovation.
Originality/value
This study has significant theoretical implications for examining the intra-firm factors that affect green innovation.
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