Equity Incentive Of Executives And Efficiency Of Corporate R & D Investment

In the era of knowledge economy, technological innovation has become crucial ability for enterprises to meet market demand, create long-term competitive advantages and keep sustainable development. The enterprises should spare no effort to carry out R&D activities and strive to improve efficiency of R&D investment. Due to serious information asymmetry and professionalism in R&D activities, the agency problem is more severe. By the means of equity incentive, executives obtain a proportion of stock ownership, participate in the distribution of residual profit and connect their future earnings to development of enterprises. To some extent, the contradiction of interests between owners and managers can be alleviated efficiently. The executives can be prompted to maximize shareholder value and pay more attention to long-term development and future competitiveness of corporates. So, can Equity Incentive of executives encourage them enhance R&D investment efficiency for improvement of innovation capability? This paper provides a new insight into effectiveness of equity incentive of executives.This paper is a combination of normative and positive research. Firstly, it mentions to the research background, significance, methods, and major innovations. Secondly,it concerns about the related theories of Equity Incentive and R&D investment efficiency, and gives a review of previous papers.Thirdly, it theoretically analyzes the mechanism through which equity incentive of executives increase efficiency of corporate R&D investment.Fourthly,choosing the listed companies in SME Board of Shenzhen Stock Exchange as samples (observation period between 2009 and 2012),empirical research evaluate efficiency of corporate R&D investment based on DEA model and executive regression analysis based on Tobit model and OLS model.Main contribution incarnates in the following three areas:1. The executives in possession of equity incentive make more efforts to enhance efficiency of corporate R&D Investment; larger proportion of executives holding bring about better efficiency of corporate R&D investment.2. Equity incentive of executives plays a significant role for efficiency of corporate R&D Investment for private enterprises, meanwhile effectiveness of equity incentive of executives isn’t observed for state-owned enterprises.3. Equity incentive of executives positively influences efficiency of corporate R&D investment for the enterprises whose CEO is also the president of board.