Research On The Effect Of Stock Incentives On Innovation Investment From The Perspective Of Large Shareholders’ Control Right

With the development of knowledge economy, innovation has increasinglybecome an important means for firms to enhance competence. The improvement ofinnovation ability depends on sustainable investment, but the attitudes of firmshareholders and managers on innovation investment are different. For shareholders,promotion in innovation ability can provide motivation for the firm’s long-termdevelopment, so shareholders wish to increase the input in innovation. Howevermanagers are not willing to increasing the innovation investment, because thecharacteristics of innovation investment such as high risk, longer term and slowlypayout could affect the short-term performance leading to bad influence on benefits ofmanagers. Equity incentive could balance the benefits between shareholders andmanagers and ensure the sustainability of the innovation investment. The fact that theownership concentration of China’s listed companies is higher cann’t be neglectedwhen discussing the effect of executive equity incentive on innovation in vestment.Only fully considering the influence of large shareholders’ control right could we getthe conclusions which are consistent with our corporate governance environment andprovide references for the decision-making.Based on the view of large shareholders’ control right, this paper discusses theimpact of equity incentive on innovation investment and further analyzes the impact bydifferentiating holding proportion of large shareholders, ownership property andindustry. Empiric results show that: executive equity incent ive is positive correlatedwith innovation under no consideration of large shareholders’ control right, but therelationship shows differences when taking it into consideration. Under the conditionof the first large shareholder absolutely holding, large shareholders’ control right canattenuate the positive relationship between executive equity incentive and innovationinput as large shareholders’ control right is conflict with equity incentive; under thesituation of multiple shareholders controlling, large shareholders’ control right canenhance the positive relationship if large shareholders monitoring each other, butattenuate the positive relationship if large shareholders cooperate with each other.What’s more, large shareholders’ control right can enhance the positive relationshipbetween executive equity incentive and innovation investment among the stated-ownedand non-high-tech firms, while there exists averse function for large shareholders’ control right on the relationship among the non-stated-owned and high-tech firms. Theresearch provides a theoretical foundation for China’s listed companies to establish aneffective environment when implementing equity incentive from the perspective oflarge shareholders’ control right.