Estimating Peer Effects in Corporate Innovation: Evidence from Compensation Peer Groups

Posted: 16 Mar 2021

See all articles by Yuan-Teng Hsu

Yuan-Teng Hsu

Shanghai Business School

Chia-Wei Huang

National Taiwan Normal University

Kees Koedijk

TIAS School of Business and Society, Tilburg University

Date Written: January 29, 2021

Abstract

This paper uses compensation peer groups to measure peer effects in corporate innovation. This approach provides a true peer group and better leader-follower link and thus can mitigate the reflection problem suggested by Manski (1993). We find that the average innovation activity of the compensation peers is a significant and first-order predictor for corporate innovation. Further analyses show that (1) the peer effect is stronger when peer companies experience higher innovation competition and are closer to the median peer company in the peer group, (2) the results are not likely to be attributed to the knowledge spillover mechanism but rather are more consistent with the peer pressure mechanism, and (3) the SEC’s 2006 executive compensation disclosure rules can generate the peer effects. Overall, the results suggest that corporate innovation decisions are responses to innovation activities and, to a lesser extent, the characteristics of the compensation peer groups.

Keywords: Peer Effect; R&D Expenditure; Patent; Compensation Peer Group

JEL Classification: G30; J33; O31; O32.

Suggested Citation

Hsu, Yuan-Teng and Huang, Chia-Wei and Koedijk, Kees, Estimating Peer Effects in Corporate Innovation: Evidence from Compensation Peer Groups (January 29, 2021). Available at SSRN: https://ssrn.com/abstract=3775453 or http://dx.doi.org/10.2139/ssrn.3775453

Yuan-Teng Hsu

Shanghai Business School ( email )

Shanghai
China

Chia-Wei Huang (Contact Author)

National Taiwan Normal University ( email )

No. 162, Section 1
Heping East Road
Taipei City, Da’an District 106
Taiwan

Kees Koedijk

TIAS School of Business and Society, Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
81
PlumX Metrics