Abstract
When companies select and use compensation peers to determine chief executive officer (CEO) compensation, they create unintended peer effects on corporate innovation due to the similarities between these companies and their compensation peers in terms of product markets, CEO characteristics, and compensation schemes. After controlling for industry and geography peer groups, the findings confirm that the average innovation activity of compensation peers is a significant and distinct predictor of corporate innovation. Further analysis showed that (1) the peer effect is stronger in firms and compensation peers that pay their CEOs using long-term compensation, in firms with stronger labor market competition and board monitoring, and in peer companies that experience higher innovation competition and are closer to the median peer company in the peer group; (2) the obtained results are likely not attributable to the knowledge spillover mechanism and are more consistent with the peer pressure mechanism; and (3) the Securities and Exchange Commission's 2006 executive compensation disclosure rules may have generated peer effects.
Original language | English |
---|---|
Article number | 102321 |
Pages (from-to) | 1-29 |
Number of pages | 29 |
Journal | Journal of Corporate Finance |
Volume | 78 |
Early online date | 17 Nov 2022 |
DOIs | |
Publication status | Published - Feb 2023 |
Bibliographical note
Funding Information:☆ We are especially grateful for constructive comments from Xuan Tian (the editor) and an anonymous referee. We also thank Kam C. Chan, Konan Chan, Ching-Hung Chang, Chuang-Chang Chang, Hong-Yi Chen, Sheng-Syan Chen, Yan-Shing Chen, Victor Chow, Keng-Yu Ho, Ching-Yu Hsu, Rachel Juiching Huang, Chuan-Yang Hwang, Cheng-yi Shiu, Yanzhi Wang, and seminar participants at Jiangxi University of Finance and Economics, Jilin University, National Central University, National Chengchi University, National Taiwan University, National Yunlin University of Science and Technology, and Shanghai Business School for helpful comments and suggestions. Chia-Wei Huang gratefully acknowledges financial support from the National Science and Technology Council (formerly the Ministry of Science and Technology) of Taiwan.
Funding Information:
We are especially grateful for constructive comments from Xuan Tian (the editor) and an anonymous referee. We also thank Kam C. Chan, Konan Chan, Ching-Hung Chang, Chuang-Chang Chang, Hong-Yi Chen, Sheng-Syan Chen, Yan-Shing Chen, Victor Chow, Keng-Yu Ho, Ching-Yu Hsu, Rachel Juiching Huang, Chuan-Yang Hwang, Cheng-yi Shiu, Yanzhi Wang, and seminar participants at Jiangxi University of Finance and Economics, Jilin University, National Central University, National Chengchi University, National Taiwan University, National Yunlin University of Science and Technology, and Shanghai Business School for helpful comments and suggestions. Chia-Wei Huang gratefully acknowledges financial support from the National Science and Technology Council (formerly the Ministry of Science and Technology) of Taiwan.
Publisher Copyright:
© 2022
Funding
☆ We are especially grateful for constructive comments from Xuan Tian (the editor) and an anonymous referee. We also thank Kam C. Chan, Konan Chan, Ching-Hung Chang, Chuang-Chang Chang, Hong-Yi Chen, Sheng-Syan Chen, Yan-Shing Chen, Victor Chow, Keng-Yu Ho, Ching-Yu Hsu, Rachel Juiching Huang, Chuan-Yang Hwang, Cheng-yi Shiu, Yanzhi Wang, and seminar participants at Jiangxi University of Finance and Economics, Jilin University, National Central University, National Chengchi University, National Taiwan University, National Yunlin University of Science and Technology, and Shanghai Business School for helpful comments and suggestions. Chia-Wei Huang gratefully acknowledges financial support from the National Science and Technology Council (formerly the Ministry of Science and Technology) of Taiwan. We are especially grateful for constructive comments from Xuan Tian (the editor) and an anonymous referee. We also thank Kam C. Chan, Konan Chan, Ching-Hung Chang, Chuang-Chang Chang, Hong-Yi Chen, Sheng-Syan Chen, Yan-Shing Chen, Victor Chow, Keng-Yu Ho, Ching-Yu Hsu, Rachel Juiching Huang, Chuan-Yang Hwang, Cheng-yi Shiu, Yanzhi Wang, and seminar participants at Jiangxi University of Finance and Economics, Jilin University, National Central University, National Chengchi University, National Taiwan University, National Yunlin University of Science and Technology, and Shanghai Business School for helpful comments and suggestions. Chia-Wei Huang gratefully acknowledges financial support from the National Science and Technology Council (formerly the Ministry of Science and Technology) of Taiwan.
Keywords
- Compensation peer group
- Patent
- Peer effect
- R&D expenditure