CEO COMPENSATION AND FIRM INNOVATION; INTERACTION EFFECT OF OWNERSHIP STRUCTURE

The purpose of this paper was to understand the impact of CEO compensation (fixed and variable) on firm innovation (measured through, R&D investment, patents application, invention patent application, utility patents application, propensity to patent and conversion). The authors proposed that this relationship is affected by state-ownership. The authors described the moderating impact of ownership structures, on the earlier prescribed relationship, in a transitional economy in a holistic manner. Authors tested those above direct and moderating relationships in the context of China, by taking all A share companie, excluding financial companies, listed at Shanghai and Shenzhen Stock exchanges from 2007-2016. Authors used year and industry effect and panel data analysis to infer the results. The study revealed that CEO compensation was positively and significantly associated with firm innovation, except for R&D investment. In other words, if CEOs are paid adequately, they will focus on the optimal use of resources. State-ownership adversely but significantly moderatd the patent application process. However, its moderating impact on the propensity to patent and conversion was positive and it indicated its value in expediting the innovation process. This study introduced necessary managerial implications, to consider the variables mentioned above, before/during/after the innovation process. CEO pay, ownership structures and innovations stages are interrelated and that the moderating impact of ownership structure presented many different horizons for managerial consideration, in a transitional economy like that of China.