Abstract:
Using panel data of Chinese listed firms from 2006 to 2011 and applying both the Difference-in-Difference approach and Propensity Score Matching method, we investigate the effect of stock option compensation on firm innovation. Our empirical results show that the adoption of stock option compensation promotes firm patenting and the increasing is more than 30%. We further find that this effect is more pronounced for non-SOEs, firms with higher mutual fund ownership, firms with longer option duration, and firms with heavier weight on top management. Our paper sheds light on the rationale of stock option compensation and has important implications for policy makers who aim to stimulate innovation.
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