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 language | English |
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Pages (from-to) | 133-156 |
Number of pages | 24 |
Journal | Financial Review |
Volume | 56 |
Issue number | 1 |
DOIs | |
Publication status | Published - Feb 2021 |
Keywords
- R&D
- executive risk incentives
- firm performance
- investment efficiency
- product market competition
ASJC Scopus subject areas
- Finance
- Economics and Econometrics