Did Western CEO Incentives Contribute to China’s Technological Rise?
55 Pages Posted: 26 Oct 2021 Last revised: 6 Dec 2021
Date Written: October 1, 2020
We study the role of Western CEO incentives in fostering the technological rise of China. Due to China's quid pro quo policy, foreign multinationals face a trade-off between the short-term benefits of accessing China's vast market and the long-term costs of transferring technology to China. Leveraging microdata on the global patent network, we construct novel measures to describe technological interactions between US firms and over 70 countries. We find that firms managed by CEOs with high-powered incentive contracts form more partnerships with China and transfer more technology to China. These firms subsequently lose R&D human capital to China and face more patenting competition from China, suggesting negative long-term consequences in innovation. The evidence is consistent with the myopia-inducing instead of the effort-inducing property of high-powered CEO incentives. The paper reveals an important real effect of CEO incentives and highlights 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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