How do executive excess compensation affect enterprise technological innovation: evidence from a panel threshold model of Chinese biopharmaceutical companies

Xu, Yong, Ji, Junzhe, Li, Nicolas ORCID: https://orcid.org/0000-0003-0746-7802 and Borah, Dhruba (2024) How do executive excess compensation affect enterprise technological innovation: evidence from a panel threshold model of Chinese biopharmaceutical companies. Journal of Business Research, 179. 114683. ISSN 0148-2963

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Abstract

This study examines the levels of executive excess compensation (EEC) that stimulate the quality and efficiency of enterprise technology innovation (ETI). Using a behavioral agency perspective, we investigate how companies achieve superior ETI by providing sufficient incentives to motivate executives to perform to the best of their abilities. We use a panel threshold model based on a sample of Chinese-listed biopharmaceutical companies and find that: (1) providing an EEC between 0.0592 and 0.1907 significantly affects the promotion of ETI quality; (2) regarding ETI efficiency, executives generally do not receive the compensation that they deserve; and (3) the existing EEC has a weak negative impact on ETI efficiency, gradually disappearing as compensation increases. Heterogeneity analysis reveals that restricting EEC to the eastern area and strengthening the supervision of EEC in state-owned enterprises are effective measures for stimulating ETI. We advance the literature by providing guidance on compensation plans to companies in different regions.