Incentivizing Managers to Build Innovative Firms

24 Pages Posted: 30 Sep 2010

See all articles by Laarni T. Bulan

Laarni T. Bulan

Cornerstone Research

Paroma Sanyal

Brandeis University - Department of Economics

Date Written: July 1, 2010

Abstract

We investigate whether the equity-linked components of top executive pay have an effect on patenting activity within a firm. We find a positive relationship between firm patenting activity and managerial alignment incentives created by stock and stock option grants. Prior work has shown that the market value of a firm reflects the value of its patents. Thus, our finding suggests innovation is one such channel through which equity alignment incentives positively impact firm value. On the other hand, we find that the risk-taking incentive from stock options does not increase patenting.

Keywords: Patents, Executive Compensation, Pay-for-Performance Sensitivity

JEL Classification: G32, G30, L2, O3

Suggested Citation

Bulan, Laarni Tobia and Sanyal, Paroma, Incentivizing Managers to Build Innovative Firms (July 1, 2010). Available at SSRN: https://ssrn.com/abstract=1684572 or http://dx.doi.org/10.2139/ssrn.1684572

Laarni Tobia Bulan (Contact Author)

Cornerstone Research ( email )

Boston, MA
United States

Paroma Sanyal

Brandeis University - Department of Economics ( email )

Waltham, MA 02454
United States

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