Impact of Managers’ Traits and Compensation Structure on R&D Investments

Abstract

This study examines the relationships between the characteristics of top management and a firm’s R&D expenditure level. We measure management entrenchment using executives’ tenures, ages, cash compensation, and dual roles as a chairman. The result suggests that firms with less entrenched management (i.e., younger, newer, and non-chairman executives with less cash compensation) invest more in R&D. Our result also shows that executives whose compensation has a higher sensitivity to stock volatility are associated with higher degree of R&D expenditures implying that executives’ compensation structures tend to influence R&D decisions.