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Are over-paid Chief Executive Officers better innovators?

Author

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  • Jouber, Habib

    (University of Gabès)

Abstract

This paper focuses on the pay level of the highest paid executive directors, which we label as “Executive Director’s Organizational Level” (henceforth EDOL), to raise the question if highest paid CEOs invest heavily in innovative projects. Two-stage least squares (2SLS) regressions show that over-paid CEOs are more likely to invest in R&D projects. They highlight, moreover, both from a “statutory” and an “activist” perspective, that CEOs’ intends to invest in value-enhancing innovations are contingent upon compensation committee inde- pendence and investor protection level. Check tests reveal that the pay-performance “innovation” effect for option-based compensation is higher than that for stock-based compensation. Within the options (stocks) rewards, unvested options (restricted stocks) are the most effective. However, we find that over-paid CEOs of low-growth firms achieve less innovation compared to those of high-growth firms. Throughout, we reveal that the effect of CEOs performance-pay on innovation is mainly relevant among overconfident managers than non-overconfident ones.

Suggested Citation

  • Jouber, Habib, 2013. "Are over-paid Chief Executive Officers better innovators?," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 18(35), pages 63-71.
    • Handle: RePEc:ris:joefas:0063
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    Citations

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    Cited by:

    1. Habib Jouber, 2019. "How does CEO pay slice influence corporate social responsibility? U.S.–Canadian versus Spanish–French listed firms," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(2), pages 502-517, March.
    2. Rosa, Adriano Carlos Moraes & Mello, Carlos henrique Pereira & Chimendes, Vanessa Cristhina Gatto & Amorim, Gabriela Fonseca, 2020. "Measuring open innovation practices in small companies at important Brazilian industrial centers," Technological Forecasting and Social Change, Elsevier, vol. 151(C).
    3. Raghavan J. Iyengar & Malavika Sundararajan, 2019. "Is Firm Innovation Associated With Corporate Governance?," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 24(03), pages 1-24, April.
    4. Ya-Fang Wang & Yen-Fang Kuo, 2020. "Exploring the Family Effect on Innovative Capacity and Earnings Management," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 13(2), pages 39-61, September.

    More about this item

    Keywords

    Chief Executive Officer; compensation Executive Director’s; Organizational Level; Research and Development expenditures; Patent citations;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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