Abstract
Although relevant literature has been accumulated, how earnings pressure from stock analysts affects a firm's innovation expenditures remains unclear. In order to make this relationship more clear, this study investigates the impact of earnings pressure on a firm's research and development (R&D) investment by considering the combined effects of CEOs' decision horizon and incentives. Our hypotheses were tested by firms from the S&P 1500 during the period from 2000 to 2012. The findings reveal that earnings pressure has a detrimental effect on a firm's R&D investment, and also that it goes worse when CEOs have a shorter decision horizon. However, when it comes to compensation incentives, we found that either CEOs equipped with higher stock ownership or fewer stock options can reduce the adverse effect of a shorter decision horizon on the relationship between earnings pressure and R&D retrenchment.
| Original language | English |
|---|---|
| Pages (from-to) | 1057-1071 |
| Number of pages | 15 |
| Journal | Technology Analysis and Strategic Management |
| Volume | 26 |
| Issue number | 9 |
| DOIs | |
| State | Published - 10 2014 |
Keywords
- CEO decision horizon
- R&D retrenchment
- earnings pressure
- stock option
- stock ownership
