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CEO Incentives and New Product Development: Insights from Trademarks

61 Pages Posted: 28 Mar 2015 Last revised: 24 Sep 2017

Lucile Faurel

Arizona State University

Qin Li

University of California, Irvine - Paul Merage School of Business

Devin M. Shanthikumar

University of California, Irvine - Paul Merage School of Business

Siew Hong Teoh

University of California, Irvine - Accounting Area

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Date Written: September 22, 2017

Abstract

New product development is critical for firms to achieve and maintain growth and performance, and is part of the OECD’s definition of innovation. We build a novel dataset of 123,545 USPTO trademark registrations by S&P 1500 firms from 1993 to 2011 to study whether and how CEO compensation risk incentives motivate new product development. Our tests offer evidence on how risk incentives affect the development of new products. We find that the number of trademarks increases with the fraction of compensation in the form of stock options, the convexity of incentives, and unvested stock options, both in low-patent (non-high-tech) and high-patent (high-tech) industries. Using a revised accounting rule, SFAS 123(R), as an exogenous shock, we find that reductions in stock option compensation cause reductions in trademark creation. Overall, the evidence indicates that CEO risk-taking incentives are important drivers of new product development.

Keywords: Product Development, Trademarks, Stock Options, Vega, Incentives, Compensation, Innovation

JEL Classification: J33, M12, M41, M52, O31

Suggested Citation

Faurel, Lucile and Li, Qin and Shanthikumar, Devin M. and Teoh, Siew Hong, CEO Incentives and New Product Development: Insights from Trademarks (September 22, 2017). Available at SSRN: https://ssrn.com/abstract=2585804 or http://dx.doi.org/10.2139/ssrn.2585804

Lucile Faurel (Contact Author)

Arizona State University ( email )

W.P. Carey School of Business
School of Accountancy, B267H
Tempe, AZ 85287
United States
(480) 965-6216 (Phone)

Qin Li

University of California, Irvine - Paul Merage School of Business ( email )

Campus Drive
Irvine, CA 92697
United States

Devin Shanthikumar

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
SB 440
Irvine, CA 92697-3125
United States

Siew Hong Teoh

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

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