Technology Spillovers and the Duration of Executive Compensation
45 Pages Posted: 18 Oct 2021
Date Written: June 18, 2021
We examine the effect of technology spillovers on the duration of executive compensation contracts. We find that in the presence of greater technology spillovers, firms tend to grant longer duration compensation contracts to their executives. This finding is consistent with theoretical predictions by Manso (2011) who argues that firms should choose longer-term contracts to encourage managerial incentives for exploration. We enhance our identification by using exogenous variation in state-level R&D tax credits of peer firms to identify the effect of technology spillovers on the duration of focal firm compensation structures. We also find this effect to be stronger among younger firms and firms with more growth opportunities. Overall, our findings suggest that technology spillover has a meaningful influence on compensation contracting.
Keywords: technology spillover, exploration vs. exploitation, pay duration, incentive contracting
JEL Classification: G3, J33, O32, O33
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