The Differential Moderating Effect of Executive Compensation on Innovation Investment and Cash Holding Value in China

Abstract

In the context of technological innovation promoting the long-term sustainable development of enterprises, how to better motivate senior executives to create greater value for an enterprise is being widely discussed. In particular, the COVID-19 outbreak has raised concerns about whether companies can deliver more value by holding large amounts of cash. However, although scholars have conducted a lot of research on topics such as innovation and firm value, how differentiated executive compensation incentives regulate the relationship between firm innovation and the value of cash holdings has hardly been explored. This paper selects the balanced panel data of 1470 A-share listed companies from 2012 to 2020 in China to explore the relationship between innovation investment, executive compensation, and the value of cash holdings. It is found that innovation investment has a positive impact on the value of the cash holdings. Based on Herzberg’s hygiene motivational factors, different types of executive compensation may have a hygiene effect or a motivational effect, which is different. As a result, the moderating effect of executive compensation on innovation investment and the value of cash holdings are significantly different. Executive equity compensation and in-service consumption are motivational attributes. They have a positive moderating effect on innovation investment and the value of cash holdings. The moderating effect of executive monetary compensation on innovation investment and the value of cash holdings changes with the change in monetary compensation. When monetary compensation is lower than the threshold value, monetary compensation is reflected as a hygiene attribute, so it has no significant positive moderating effect on innovation investment and the value of cash holdings. When monetary compensation is higher than the threshold value, monetary compensation is reflected as a motivational attribute, so it has a significant positive moderating effect on innovation investment and the value of cash holdings. Meanwhile, it is tested that monetary compensation is not manipulated by executive compensation defense behavior when it is reflected as motivational attributes.