Research On Open Innovation Based On M&A And Executive Compensation Incentive Of Company

Innovation is an inevitable requirement for high-quality economic development.It is the core foundation for a country to achieve high-level self-reliance and self-improvement.It is also an important driving force for enterprises to maintain their competitive advantages.Under the influence of the profoundly changing domestic and foreign environment,enterprises have more initiative in improving their innovation ability,constantly strengthen their R&D investment,and constantly innovate in innovation mode.In recent years,innovation means are no longer limited to the traditional sense of self-built innovation.With the continuous development of the capital market,mergers and acquisitions(M&A)has been widely used as an important way of open innovation in the current open and shared development environment.Open innovation based on M&A has also expanded from technology mergers and acquisitions to the acquisition of broader innovation resources.Open innovation based on M&A has gradually become an important innovation mode chosen by enterprises.Perfect and reasonable innovation incentive mechanism is of great significance to stimulate the innovation enthusiasm of R&D personnel,ensure the effective operation of innovation mechanism,and improve the efficiency of enterprise innovation.The efficient operation of any innovation mode needs to design an innovation incentive mechanism suitable for it,which is also an important research direction in the field of corporate finance.Based on the background of self-built innovation,the existing researches have extensively discussed the decision mechanism and optimization mechanism of innovation incentive mainly in the form of compensation incentive contract.The open innovation mode based on mergers and acquisitions that this study focuses on,namely,the open innovation mode with acquisition and utilization of external innovation resources as the goal and acquisition as the realization means,is significantly different from the self-built innovation in terms of innovation subject,innovation risk characteristics and innovation performance formation mechanism.However,there are few researches have been conducted on the particularity or on the determination mechanism and design principles of executive compensation incentive contracts of open innovation based on M&A.By investigating the impact of open innovation model based on M&A on executive compensation incentives,this study will reveal the executive compensation contract determination mechanism under open innovation based on M&A,to make a certain supplement to the relevant research on corporate innovation incentives.In this study based on analyzing the characteristic of the open innovation based on M&A,and construct an executive compensation incentive theory framework of open innovation model based on M&A.Further,the empirical test is conducted on the samples of Shanghai and Shenzhen A-share listed companies from 2009 to 2017.It is found that open innovation based on M&A can significantly affect the characteristics of executive compensation contract.Compared with the innovation incentive mechanism under the self-built innovation model,the design principles of executive compensation contract and the rules of compensation formulation under the open innovation based on M&A are significantly different.Open innovation based on mergers and acquisitions is an innovation paradigm of internalization of external innovation resources.Compared with self-built innovation,it is characterized by low uncertainty of innovation achievements,short cycle of innovation output and upward movement of innovation contributors in the job system.These characteristics determine that the incentive policy under the open innovation model based on mergers and acquisitions will be inclined to executives and focus on short-term incentive effects.The research also found ways to formulate compensation incentive contracts that increase the level of executive compensation,increase the sensitivity of pay and performance,widen the executive-employee vertical compensation gap,and incline equity incentives to executives.After the robustness test such as endogenous test,the relevant findings are still valid.The specific research findings are as follows:Firstly,open innovation based on M&A,as a low-risk and short-cycle innovation model,makes it easier for executives to reflect their efforts through performance,so it is more suitable to use performance-compensation to encourage executives;at the same time,open innovation based on M&A innovation has higher requirements for the talent and effort of executives,so a higher level of compensation premium should be paid.Specifically,by analyzing and examining the impact of open innovation based on M&A on executive compensation and pay performance sensitivity,it is found that companies that adopt open innovation based on M&A will significantly increase the pay level and sensitivity of pay and performance,which is obviously different from the compensation incentive mechanism with low pay performance sensitivity discovered from the perspective of self-constructed innovation.Furthermore,the use of open innovation based on M&A can significantly reduce the company’s innovation risks and increase innovation output,highlighting the difference in characteristics between open innovation based on M&A and self-constructed innovation.The reduction of innovation risk and the improvement of short-term innovation output play an intermediary role in the impact on executive compensation and pay performance sensitivity,indicating low-risk,short-period innovation characteristics and enabling performance compensation become a more suitable incentive method for open innovation based on M&A.Further research shows that the effect of open innovation based on M&A on executive compensation contract is affected by the nature of enterprise property rights.The effect of open innovation based on M&A on improving executive pay level is more obvious in state-owned enterprises,while the effect of improving the sensitivity of pay and performance is more obvious in private enterprises.When listed companies are in a region with a high level of marketization,open innovation based on M&A has a more significant impact on the level of executive compensation and the sensitivity of pay and performance.Secondly,the success of open innovation based on M&A is more determined by the efforts and contributions of executives,which will cause the incentives to move up the position system,which will form a larger pay gap.However,implicit incentives such as power can reduce the role of open innovation based on M&A in widening the pay gap.By analyzing and examining the impact of open innovation based on M&A on the executive-employee vertical pay gap,it is found that in listed companies that have adopted open innovation based on M&A,the vertical pay gap between executives and employees is even greater.Under the highly implicit incentive of the decentralized power allocation model where the manager does not serve as the chairman of the board,the open innovation based on M&A has no obvious impact on the pay gap between executives and employees.Further research found that the effect of the controlling shareholder’s supervision effect on the suppression of the power of executives reduces the implicit incentives for executives.Therefore,to encourage executives to make more efforts in open innovation based on M&A,it is necessary to increase the vertical pay gap between executives and employees.Finally,open innovation based on M&A not only affects monetary compensation incentives,but also enhances the tendency of equity incentives for senior executives,and equity incentives also have the feature of favoring senior executives.By analyzing and testing the impact of open innovation based on M&A on equity incentives,listed companies that adopt open innovation based on M&A will increase the propensity to implement equity incentives for senior executives.The open innovation based on M&A has an increased influence on the preference of equity incentives.Further research has found that listed companies that adopt open innovation based on M&A are more inclined to motivate company executives in the selection of equity incentive objects between executives and core technical personnel,and have a higher proportion of equity incentives granted to executives,and the effective period of equity incentives will be significantly shortened.These evidences show that under open innovation based on M&A,equity incentives are not aimed at incentivizing executives to take risks,but mainly for short-term incentive effects.This is the same as open innovation based on M&A in terms of innovation risks,innovation cycles,and the characteristics of innovation subjects.Putting equity incentives and monetary compensation incentives in the same analytical framework,further research found that under the open innovation based on M&A,equity incentives have an alternative role to compensation incentives.When equity incentives are adopted,open innovation based on mergers and acquisitions improves the effect of compensation levels and the executive-employee pay gap will be weakened,which shows that under the open innovation based on M&A,there is a remuneration incentive structure characterized by the growth and decline of monetized compensation incentives and equity incentives.This research reveals that under the open innovation model based on M&A,there is a compensation contract optimization mechanism characterized by high pay performance sensitivity based on the innovation risk mitigation effect.This research enriches the research on the decision mechanism of executive compensation contracts from the perspective of innovation.Based on the perspective of executives as the core subject of innovation contribution,this paper reveals the relationship mechanism between corporate innovation and pay gap,makes up for the limitations of the existing pay gap determination mechanism from the perspective of low-paid winners,and enriches innovation incentives.Research on the decision mechanism of executive compensation contract,and based on the special innovation background in which executives play a decisive role,this paper reveals the substitution effect between the explicit incentives based on compensation and the implicit incentives based on the acquisition of executive power,and expands the research on the mechanism of executive compensation.At the same time,the influence mechanism of open innovation based on M&A on executive incentive contracts disclosed in this article has certain guiding significance for companies to formulate differentiated executive incentive mechanisms based on different innovative investment models.In the future,based on this study,we can further discuss the integration effect of open innovation based on M&A on innovation resources and the mechanism design of equity incentive mode under the open innovation based on M&A,and discuss the mechanism and mode of promoting open cooperation in science and technology by means of open innovation based on M&A from an international perspective.