Managerial Incentives, CEO Characteristics and Corporate Innovation in China’s Private Sector

35 Pages Posted: 18 Dec 2009

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Ping Lin

Lingnan University - Department of Economics

Frank M. Song

The University of Hong Kong - School of Economics and Finance

Chuntao Li

The University of Hong Kong - School of Economics and Finance

Date Written: December 15, 2009

Abstract

We use a unique World Bank survey of 1,088 private manufacturing firms from 18 Chinese cities over the period 2000 to 2002 to empirically examine the roles of managerial incentives and CEO characteristics in a firm’s innovation activities. We look at both innovation effort (R&D intensity) and innovation performance measures such as new product sales. We obtain the following main results: (1) the presence of CEO incentive schemes increases both corporate innovation effort and innovation performance; (2) sales-based performance measures in the incentive scheme, as compared with profit-based performance measure, are more conducive to firm innovation; and (3) CEO education level, professional background and political connection are positively associated with firm’s innovation efforts. The main results are robust to endogeneity tests with instrumental variables. We also discuss some important policy implications.

Suggested Citation

Lin, Chen and Lin, Ping and Song, Frank M. and Li, Chuntao, Managerial Incentives, CEO Characteristics and Corporate Innovation in China’s Private Sector (December 15, 2009). Journal of Comparative Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1524023

Chen Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Ping Lin

Lingnan University - Department of Economics ( email )

135 Xingang Xi Road
Tuen Mun
Guangzhou, Guangzhou 510275
China
(852)2616 7203 (Phone)
(852)2891 7940 (Fax)

Frank M. Song

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

Chuntao Li

The University of Hong Kong - School of Economics and Finance ( email )

RM 1122, K.K. Leung Buildingm
the Univ. of Hong Kong, Pokfulam Road
Hong Kong
China
00852-2857-8637 (Phone)

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