CEO Incentive, Risk Appetite and Enterprise Innovation

Abstract

Abstract: We explore how different CEO innovation incentive methods are associated with corporate innovation, and whether innovation incentive effect varies with CEO’s risk appetite. We focus on two mechanisms: giving CEO innovation management income and accepting CEO innovation failure. For our analyses, we use China’s A-share listed companies from 2012 to 2018 as research objects. We find that both giving CEO innovation management income and accepting CEO innovation failure can promote the innovation of companies. But with the change of CEO risk appetite, the two mechanisms different promotion effects. For CEOs with low risk appetite, providing incentives is better able to promote innovation than accepting CEO innovation failure. For CEOs with high risk appetite, giving them innovation management income is a more effective way to do so. Further analysis shows that the moderating effect of CEO’s risk preference is heterogeneous based on enterprise nature and industry competition. And giving CEO’s innovation management income may lead to inefficiency of innovation incentives because of the CEO’ s high risk preference.This paper expands the research of innovation incentive, reveals the characteristics of CEO innovation incentive, provides empirical evidence and theoretical basis for establishing an effective CEO innovation incentive mechanism, and provides a reference for optimizing corporate governance mechanism.

Key words: CEO incentive, risk appetite, enterprise innovation, innovation revenue, innovation risk

Su Rina, Cheng Xinsheng, Yang Xiaoping, Huang Lixin. CEO Incentive, Risk Appetite and Enterprise Innovation[J]. Management Review, 2022, 34(11): 65-74.

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