Did Western CEO Incentives Contribute to China’s Technological Rise?
72 Pages Posted: 26 Oct 2021 Last revised: 17 Jul 2023
Date Written: October 1, 2020
China’s quid-pro-quo policy requires foreign multinationals to trade off the short-term benefits of market access and the long-term costs of technology transfer. Do Western CEO incentives affect this trade-off? We document that firms managed by CEOs with high-powered incentive contracts form more partnerships with China and transfer more technology there. These firms subsequently lose R&D human capital to China and face more patenting competition from China, suggesting negative long-term consequences. We provide evidence consistent with the myopia-inducing property of high-powered CEO incentives. The paper highlights an important real effect of CEO incentives and a novel channel behind China’s technological catch-up.
Keywords: Managerial compensation, CEOs, myopia, innovation, technology transfer, patents, China
JEL Classification: F21, F23, F61, G34, O33, O34
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