The Impact of Pay-Performance Sensitivity of High-Level Managers on Myopic R&D Investment Behavior and R&D Performance

• Main Authors: Meng-Jing Lin, 林孟瑾
• Other Authors: Cheng-Jen Huang
• Format: Others
• Language: zh-TW
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/63960790109716421161

碩士 === 東海大學 === 會計學系 === 98 === After the outbreak of the financial Tsunami, many companies still paid high bonus to high level managers, so government financial supervisory authorities required companies to pay managers’ compensation more closely linked to performance. According to prior literature, innovation capability is the tool to create the value-added and growth, so R&D investment is so important for the competitiveness. However, when the pay-performance sensitivity is high, it is worth to explore whether the managers cut the R&D expense to achieve the target earnings or not and the impact on R&D performance. In this study, the research objects are Taiwan’s publicly traded electronics industry. I use the compensation of high-level managers based on Abowd (1990) to measure the pay-performance sensitivity. I also distinguish the objects by the target earnings including previous earnings and zero earning based on Bushee (1998) and Burgstahler and Dichev (1997). The empirical results show that when the pay-performance sensitivity (PPS) of high-level managers is high, the myopic R&D investment behavior will be more obvious. The R&D performance is also worse due to high PPS. Because R&D activity is very important in electronics industry, the managers will not cut the R&D expenditure easily unless a large decrease of earning. However, the high-level managers are more concerned about the zero earning; they tend to cut R&D expenditure to avoid a loss.