The effect of capital market pressures on the association between R&D spending and CEO option compensation

The effect of capital market pressures on the association between R&D spending and CEO option... We examine the effect of capital market pressures for meeting earnings benchmarks on the relationship between R&D spending and CEO option compensation. We consider a particular scenario when firms face small earnings declines but could opportunistically reduce R&D spending to increase reported earnings. We find that firms with income reporting concerns punish their CEOs with lower option compensation when R&D spending increases but reported earnings decreases. Further, for firms with income reporting concerns, we find that the penalty for increasing R&D is greater when the firms frequently miss quarterly earnings benchmarks in the year. Overall, our findings suggest that the adverse consequence on CEO options encourages short-run compensation-motivated actions to eliminate or postpone R&D projects with positive net present values. Review of Quantitative Finance and Accounting Springer Journals

The effect of capital market pressures on the association between R&D spending and CEO option compensation

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Springer US
Copyright © 2009 by Springer Science+Business Media, LLC
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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