ORIGINAL ARTICLE
Executive risk incentives, product market competition, and R&D
Hussein Abdoh,
Yu Liu,
Hussein Abdoh
Department of Accounting and Finance, United Arab Emirates University, Abu Dhabi, Al Ain, UAE
Search for more papers by this authorCorresponding Author
Yu Liu
Department of Economics and Finance, University of Texas Rio Grande Valley, Edinburg, Texas, United States
Correspondence
Yu Liu, Department of Economics and Finance, University of Texas Rio Grande Valley, Edinburg, Texas, United States.
Email: yuliucatherine@gmail.com
Search for more papers by this authorHussein Abdoh,
Yu Liu,
Hussein Abdoh
Department of Accounting and Finance, United Arab Emirates University, Abu Dhabi, Al Ain, UAE
Search for more papers by this authorCorresponding Author
Yu Liu
Department of Economics and Finance, University of Texas Rio Grande Valley, Edinburg, Texas, United States
Correspondence
Yu Liu, Department of Economics and Finance, University of Texas Rio Grande Valley, Edinburg, Texas, United States.
Email: yuliucatherine@gmail.com
Search for more papers by this authorAbstract
Prior studies have examined the relation between product market competition (PMC) and research and development (R&D) investments, while the impact of executive risk incentives on this relation remains unexplored. In this study, we find that Vega (the sensitivity of executives’ wealth to stock return volatility) weakens the negative relation between PMC and R&D. We also find that Vega strengthens the negative relation between PMC and firm performance when R&D investments grow higher. In sum, our results suggest that high-Vega compensation portfolios in competitive environments may induce executives to overinvest in R&D projects, therefore hurting firm performance.
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