Do Firms Use Time-Vested Stock-Based Pay to Keep Research and Development Investments Secret?

Abstract:     
I find that executives’ unvested equity holdings are larger when executives are employed by R&D-intensive firms in industries that rely more on secrecy to profit from R&D. Moreover, I find that this relation is more pronounced for executives with a greater ability to exploit R&D-related information and also holds for non-executive employees. In addition, I find that these firms use option grants with longer vesting periods and that unvested equity holdings reduce the likelihood that their executives leave to find employment elsewhere. Overall, my findings are consistent with firms using time-vested stock-based pay to reduce the leakage of R&D-related information to competitors through employee mobility.

Number of Pages in PDF File: 47

Keywords: Equity-Based Compensation, R&D investments, Property Rights

JEL Classification: J33, M52

Accepted Paper Series