The Perspective of Long-Term and Short-Term Incentives on the Business Environment, Executive Incentive Contracts, and Enterprise Innovation

Abstract

Innovation is the first driving force leading economic development, and small and medium-sized enterprises have strategic significance in stimulating innovation activity and promoting economic growth. Few studies concentrating on small and medium-sized businesses examine the connection between executive incentive contracts and business innovation. Therefore, we use them as the research object in this study. We empirically analyze the relationship between executive incentive contracts and enterprise innovation using the research sample of small and medium-sized board-listed companies from 2009 to 2020, focusing on long-term equity and short-term pay incentives. The study also analyzes if the corporate environment will impact a specific motivational system. The results show that improving executive shareholding and pay level can significantly promote enterprise innovation. The areas with better business environments mean practical innovation. Otherwise, organizational equity and pay incentives positively affect innovation in non-state-owned enterprises. This effect might increase the business environment compared to state-owned enterprises. Meanwhile, information transparency is improved by equity incentives and pay incentives, and the implementation intensity of equity incentives reduces the degree of financialization. By demonstrating how CEO equity and pay incentives affect corporate innovation, this study adds to the body of literature in that field. It also offers empirical evidence to assist corporations in creating the most corporate equality and pay incentives. Future studies should continue examining the impact of non-material incentives on enterprise innovation and the relationship between equity and pay incentives.