Do Short-term Incentives Hurt Innovation?

54 Pages Posted: 5 Sep 2020 Last revised: 4 Apr 2022

See all articles by Heitor Almeida

Heitor Almeida

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Vyacheslav Fos

Boston College - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance

Mathias Kronlund

Tulane University

Kevin Tseng

National Taiwan University - Department of Finance; National Taiwan University - Center for Research in Econometric Theory and Applications

Date Written: April 4, 2022

Abstract

We find evidence that short-term pressures to raise earnings per share using stock repurchases have positive effects on firms’ innovative efficiency, owing to improved allocation of resources and greater focus on novel innovation. These effects manifest as increases in the influence of future innovation outputs, measured as forward citations and the economic value of patents, but only for firms that are relatively better at producing new innovation ex-ante. Our findings illustrate that short-term incentives can have a bright side even when short-term pressures are not associated with external interventions from private equity and hedge funds.

Keywords: Innovation, short-termism, EPS management, patents, trademarks, exploration

JEL Classification: G31, O31, G35, M20, M41

Suggested Citation

Almeida, Heitor and Fos, Vyacheslav and Hsu, Po-Hsuan and Kronlund, Mathias and Tseng, Kevin, Do Short-term Incentives Hurt Innovation? (April 4, 2022). Available at SSRN: https://ssrn.com/abstract=3663903 or http://dx.doi.org/10.2139/ssrn.3663903

Heitor Almeida

University of Illinois at Urbana-Champaign ( email )

515 East Gregory Drive
4037 BIF
Champaign, IL 61820
United States
217-3332704 (Phone)

HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Vyacheslav Fos

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Po-Hsuan Hsu (Contact Author)

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

Mathias Kronlund

Tulane University ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Kevin Tseng

National Taiwan University - Department of Finance ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

National Taiwan University - Center for Research in Econometric Theory and Applications ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

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