• R&D Expenditure And CEO Compensation: The Impact Of Corporate Control And Growth Opportunity On Managerial Opportunism

Abstract

This study aims to explore whether the board of directors seeks to prevent CEO opportunistic reductions in R&D investments. How corporate control (family firms or non-family firms) and growth opportunity affect the linkage of R&D spending and CEO compensation is the focus of this study. In non-family firms, we find there is a positive significant relationship between changes in R&D expenditures and changes in CEO compensation when CEOs approach retirement, or/and when firms face a small earnings decline or a small loss. Specifically, compared to family-firms, the board of directors of non-family firms tend to significantly adjust the CEO compensation schemes to deter managerial opportunism. With regards to the effect of growth opportunity, this study finds that the board of non-family firms facing higher growth opportunity has stronger incentives to adjust CEO compensation to prevent the CEO from opportunistically reducing R&D expenditures, as compared with family-firms as well as non-family firms facing lower growth opportunity.

Keywords: CEO Compensation, Corporate Control, Growth Opportunity, Managerial Opportunism