Do lucky CEOs avoid innovation?

Kwang Joo Koo, Won Yong Kim

Research output: Contribution to journalArticle

Abstract

Stock options are one of the most widely used equity-based compensation mechanisms to mitigate misalignment between managers’ and shareholders’ interests. And yet, it is sometimes suspiciously used as a method of extracting shareholders’ wealth to managers (Bebchuk et al., 2009). The typical ways to do so is using opportunistic timing such as backdating, spring-loading, etc. As shown in Bebchuk et al. (2010), opportunistic timing of option grants increases the incidence of lucky grants, or stock option grants that CEOs receive when the price is abnormally low. We investigate whether lucky grants to CEOs impact firm innovations and, by extension, long-term growth. Using patent citations as a proxy variable for innovation (Kogan et al., 2017), we find that innovation decreases if CEOs received lucky grant in the previous year. The results imply that lucky grants may reduce the incentive for CEOs to invest in risky, long-term projects and negatively affect fir innovation.

Original languageEnglish (US)
Pages (from-to)795-798
Number of pages4
JournalApplied Economics Letters
Volume26
Issue number10
DOIs
StatePublished - Jun 7 2019

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Innovation
Chief executive officer
Managers
Proxy variables
Equity
Incentives
Stock option grants
Shareholder wealth
Backdating
Shareholders
Long-term growth
Patent citations
Misalignment
Compensation mechanism
Stock options

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

Koo, Kwang Joo ; Kim, Won Yong. / Do lucky CEOs avoid innovation?. In: Applied Economics Letters. 2019 ; Vol. 26, No. 10. pp. 795-798.
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Do lucky CEOs avoid innovation? / Koo, Kwang Joo; Kim, Won Yong.

In: Applied Economics Letters, Vol. 26, No. 10, 07.06.2019, p. 795-798.

Research output: Contribution to journalArticle

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