Why Didn’t IFLYTEK’s High R&D Investment Improve Its Profitability?

Equity incentive is an important tool to reduce principal-agent cost,which can restrain short-sighted behavior of operators and realize the long-term interests of the company.As a benchmark enterprise in this field,i FLYTEK has implemented three periods of equity incentive in the past ten years,but high R&D investment and low profitability have coexisted for a long time.Therefore,taking IFLYTEK’s high R&D investment as the background,this thesis studies the reasons why i FLYTEK ’s high R&D investment does not improve its profitability from the perspective of equity incentive,and puts forward targeted suggestions,which are of great significance to the sustainable development of i FLYTEK.This thesis reviews the existing research literature at home and abroad,and applies the technology innovation theory,incentive theory and principal-agent theory.Firstly,it analyzes the specific performance of i FLYTEK from 2011 to 2020 with high R&D investment and low profitability.Then from the rationality of the evaluation indexes,incentive object and the matching of assessment index,and equity incentive strategy to the company supporting three main aspects of the in-depth analysis of the three periods of equity incentive plan content and the implementation effect,it is concluded that the defects existing in the equity incentive plan design,and in the process of implementation of the negative impact of the company’s profitability.The study found that the high R&D investment during this period did not improve the profitability of i FLYTEK.The R&D investment continued to increase,but the profitability indicators such as gross profit margin on sales,profit margin on sales,core profit margin and profit margin on net assets declined.The research on the equity incentive plan of i FLYTEK shows that there are defects in the three plans,which is an important reason for the decrease of profitability.The equity incentive plan of the first phase set the target value of the assessment index too low and gave insufficient incentives to senior executives,resulting in a significant decline in the net asset profit margin index during the assessment period from 2011 to 2014.The assessment index of the second phase of equity incentive plan is mismatched with the incentive object,which is inconsistent with the ongoing corporate strategy,and the incentive number is small and the scope is small,resulting in the significant decrease of profitability indicators such as sales profit margin,core profit margin and net asset profit margin during the assessment period from 2014 to 2017.The third equity incentive plan only evaluates the income index and ignores the attention to the profit,resulting in the decline of the core profit margin and profit quality during the assessment period from2017 to 2020.Based on the above research conclusions,this thesis puts forward corresponding suggestions for i FLYTEK to improve the design of equity incentive scheme.First of all,the design of equity incentive plan should be reasonable selection of assessment indicators,through a sound assessment system to ensure the healthy development of the company;Secondly,the assessment index should match with the incentive object,so as to achieve the incentive compatibility and better complete the assessment target;Finally,equity incentive should play a supporting role in corporate strategy and realize the unity of equity incentive goal and corporate strategic guidance.This thesis has 23 figures,32 tables and 79 references.