Does Tournament Incentive Promote Firm R&D?

Since 2013,a wave of executive turnover has emerged at the beginning of each year.Senior executives,as the key figure in business management,have become the main target of talent competition among enterprises.Incentives that firms set up for executives play an important role in human management.Tournament incentives is an incentive mechanism for the winner to gain promotion by comparing the performance of competing people.So,tournament incentives can motivate non-CEO senior executives to invest in R&D? Will tournament incentives play a different role in R&D investment among state-owned and private-sector companies? When CEO change occurs,the hope of promotion of senior executives becomes bigger,will the promotion of the tournament incentives to R&D investment be strengthened? When CEO turnover occurs,executives often have an expectation to the successor CEO.Will the competition for promotion championships intensify if the successor CEO is usually promoted from within the organization? Will it further enhance the promotion of R&D investment? If successor CEO is an outsider,can the tournament incentives still make sense? This is the main issue to be studied in this article.This article measures tournament incentives using the pay gap between a CEO and the next layer of senior executives.Firstly,we sorts out the main influencing factors of innovation and the related literature about the influence of executive incentive on enterprise innovation.Then in the data analysis section,we collect the data about the CEO and non-CEO senior executives compensation of Chinese listed companies.Then we compared the basic characteristics of CEO,the salary information of CEO and non-CEO senior executives,and the turnover of CEOs,among the state-owned and private-owned enterprises.Statistics show that in recent years the trend of executive pay rise obviously,but the CEO and non-CEO senior executives are also constantly widening the pay gap,executives are increasingly fierce competition for promotion.In the empirical part,this paper studies CEO and no-CEO pay gap,R&D investment and CEO turnover data,and also studies the relationship between executive incentive promotion and corporate R&D investment.The results show that:(1)tournament incentives can promote R&D investment,CEO-executive pay gap widening,will promote no-CEO senior executives to concentrate on innovation,R&D investment increase;(2)The instability caused by CEO turnover has weakened the effect of tournament incentives on R&D investment.The signal of the CEO replacement came out,no-CEO executives is expecting to promote,so the expectation of CEO turnover will enhance the positive effect of tournament incentives on R&D investment.(3)In the next three years,usually an internal executive is promoted to CEO,the interaction with the tournament incentive will have a significant positive effect on R&D investment.If the successor is from the outsidee,the interaction with the tournament incentive will not have a significant impact on R&D investment.In the part of robustness test,this paper tests the conclusion of the study from the five aspects: innovation enterprise subsamples,regional subsamples,instrumental variables approach,propensity score matching method and transformation of explanatory variables(the number of patent applications).In different circumstances,the conclusion of the study is still robust.In the conclusion part,we summarizes the basic conclusions of this article and then make some policy recommendations respectively from business and government perspectives.This article starts from the tournament incentives,investigates the influence of executive promotion incentive on enterprise R&D investment,enriches the relevant literature about no-CEO senior executives tournament incentive and enterprise innovation research,and provides a new idea for the research of executive promotion incentive.In addition,this article also discusses the impact of CEO turnover on the tournament incentives and studies the impact of the interaction between the two on the enterprise R&D investment.The CEO turnover,the source of successor CEO and the tournament incentive promotion are unified.The impact of the interaction of the three on R&D investment is systematically analyzed.This research on enterprise innovation provides a new direction.The conclusion of this article also provides a reference to the enterprise policymakers in setting salary system and incentive mechanism.