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Technology spillovers and the duration of executive compensation

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  • Huang, Minjie
  • Kubick, Thomas R.
  • Tseng, Kevin

Abstract

We examine the effect of technology spillovers on the duration of executive compensation contracts. We find that in the presence of greater technology spillovers, firms tend to grant longer duration compensation contracts to their executives. This finding is consistent with theoretical predictions by Manso (2011) who argues that firms should choose longer-term contracts to encourage managerial incentives for exploration. We enhance our identification by using exogenous variation in state-level R&D tax credits of peer firms to identify the effect of technology spillovers on the duration of focal firm compensation structures. We also find this effect to be stronger among younger firms and firms with more growth opportunities. Overall, our findings suggest that technology spillover has a meaningful influence on compensation contracting.

Suggested Citation

  • Huang, Minjie & Kubick, Thomas R. & Tseng, Kevin, 2021. "Technology spillovers and the duration of executive compensation," Journal of Banking & Finance, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:jbfina:v:131:y:2021:i:c:s0378426621001680
    DOI: 10.1016/j.jbankfin.2021.106209
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    Cited by:

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    More about this item

    Keywords

    Technology spillover; Exploration vs. exploitation; Pay duration; Incentive contracting;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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