The Interactions Between R&D Investment Decisions and Compensation Policy
Harley E. Ryan Jr.
Georgia State University - Department of Finance
Roy A. Wiggins III
Bentley University - Department of Finance
Financial Management, Vol. 31, No. 1, Spring 2002
We use a system of equations to investigate the endogenous relation between R&D investment and CEO compensation. Growth opportunity is positively related to the use of stock options. Stock options positively affect R&D while restricted stock has a negative influence. These results suggest that CEO compensation should balance incentive alignment and efficient risk sharing with risk-averse managers. Stock options are also found to be negatively related to leverage, but positively related to convertible debt. Additionally, this analysis suggests that institutional ownership directly influences R&D investment by providing managerial oversight and indirectly by influencing the compensation policy.
Accepted Paper Series
Date posted: March 6, 2002
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