The crowding-out effect of shareholder value-based CEO compensation on R&D investment in the European context: a new interpretation
ISSN: 0368-492X
Article publication date: 5 October 2022
Issue publication date: 28 November 2023
Abstract
Purpose
In the present study, using a novel fractional logit model, the link between R&D (Research & Development) investment and shareholder value-based CEO (Chief Executive Officer) compensation has been examined within the non-financial sector in the Euro area economies using a firm-level dataset for 2002–2019.
Design/methodology/approach
The fractional logit model is utilized to examine the effects of corporate payment on R&D investment. The fractional logit model can be considered the empirical approach that takes into account R&D non-performer firms to avoid reducing the sample size. The fractional logit model is superior to the censored or truncated models, like Tobit, since the fractional logit model is useful to address the econometric limitations that are found in the censored and truncated models in the non-linear models.
Findings
The findings obtained in this study showed a significant and negative effect of short-term aim-based CEO payment on R&D expenditures in the Euro area economies using firm-level data. These findings are robust to different robustness checks and modeling alternatives.
Originality/value
To the author's knowledge, there is no study that examines the effects of short-term shareholder value maximization-based CEO compensation on R&D in the European context in the literature.
Keywords
Acknowledgements
The author thanks three anonymous reviewers and the Editor-in-Chief: Professor Gandolfo Dominici for the constructive comments on the previous version of this paper.
Availability of data and material: It can be requested from the author upon reasonable request since the dataset is not permitted to distribute by the Thomson Reuters Refinitiv.
Code availability: It can be requested from the author upon reasonable request.
Ethics approval: The submitted work should be original and should not have been published elsewhere in any form or language (partially or in full).
Citation
Doruk, Ö.T. (2023), "The crowding-out effect of shareholder value-based CEO compensation on R&D investment in the European context: a new interpretation", Kybernetes, Vol. 52 No. 12, pp. 6572-6589. https://doi.org/10.1108/K-02-2022-0258
Publisher
:Emerald Publishing Limited
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