Managerial incentives, CEO characteristics and corporate innovation in China's private sector

Chen LIN, Ping LIN, Frank M. SONG, Chuntao LI

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

82 Citations (Scopus)

Abstract

We use a unique World Bank survey of 1,088 private manufacturing firms from 18 Chinese cities over the period 2000 to 2002 to empirically examine the roles of managerial incentives and CEO characteristics in a firm’s innovation activities. We look at both innovation effort (RandD intensity) and innovation performance measures such as new product sales. We obtain the following main results: (1) the presence of CEO incentive schemes increases both corporate innovation effort and innovation performance; (2) sales-based performance measures in the incentive scheme, as compared with profit-based performance measure, are more conducive to firm innovation; and (3) CEO education level, professional background and political connection are positively associated with firm’s innovation efforts. The main results are robust to endogeneity tests with instrumental variables. We also discuss some important policy implications.
Original languageEnglish
Pages (from-to)176-190
Number of pages15
JournalJournal of Comparative Economics
Volume39
Issue number2
DOIs
Publication statusPublished - 1 Jun 2011

Fingerprint

CEO characteristics
Performance measures
China
Private sector
Innovation
Corporate innovation
Managerial incentives
Innovation performance
Chief executive officer
Incentive schemes
New products
Manufacturing firms
Endogeneity
Education
Instrumental variables
Political connections
Policy implications
Profit
Innovation activities
World Bank

Keywords

  • CEO characteristics
  • Corporate innovation
  • Managerial incentives

Cite this

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title = "Managerial incentives, CEO characteristics and corporate innovation in China's private sector",
abstract = "We use a unique World Bank survey of 1,088 private manufacturing firms from 18 Chinese cities over the period 2000 to 2002 to empirically examine the roles of managerial incentives and CEO characteristics in a firm’s innovation activities. We look at both innovation effort (RandD intensity) and innovation performance measures such as new product sales. We obtain the following main results: (1) the presence of CEO incentive schemes increases both corporate innovation effort and innovation performance; (2) sales-based performance measures in the incentive scheme, as compared with profit-based performance measure, are more conducive to firm innovation; and (3) CEO education level, professional background and political connection are positively associated with firm’s innovation efforts. The main results are robust to endogeneity tests with instrumental variables. We also discuss some important policy implications.",
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Managerial incentives, CEO characteristics and corporate innovation in China's private sector. / LIN, Chen; LIN, Ping; SONG, Frank M.; LI, Chuntao.

In: Journal of Comparative Economics, Vol. 39, No. 2, 01.06.2011, p. 176-190.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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AU - LIN, Ping

AU - SONG, Frank M.

AU - LI, Chuntao

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N2 - We use a unique World Bank survey of 1,088 private manufacturing firms from 18 Chinese cities over the period 2000 to 2002 to empirically examine the roles of managerial incentives and CEO characteristics in a firm’s innovation activities. We look at both innovation effort (RandD intensity) and innovation performance measures such as new product sales. We obtain the following main results: (1) the presence of CEO incentive schemes increases both corporate innovation effort and innovation performance; (2) sales-based performance measures in the incentive scheme, as compared with profit-based performance measure, are more conducive to firm innovation; and (3) CEO education level, professional background and political connection are positively associated with firm’s innovation efforts. The main results are robust to endogeneity tests with instrumental variables. We also discuss some important policy implications.

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