Managerial equity incentives portfolio and the moral hazard of technology investment

Corporate innovation and trade credit demand: Evidence from China

“…The descriptive estimates of the main variables used in this study are reported in Table 3. The average value of the creditors' payment days (Cull et al, 2009; Tang & Moro, 2020), quantity and quality of innovation (Shahzad, Luo, Pang, et al, 2021), and control variables (Cai et al, 2014; Cull et al, 2009) are consistent with the previous studies in China. Next, the Pearson correlation analysis is applied to confirm multicollinearity issues in our panel data; the estimations are reported in Appendix .…”

“…Chinese IPOs divide patents into three categories: (1) invention, (2) utility, and (3) design. The patent count data are effective and meaningful indicators of corporate innovation and highly correlated with R&D input, especially in China (Dang & Motohashi, 2015; Shahzad, Luo, Pang, et al, 2021). Innovative firms protect their technology investment through utility models (improvement with a lower degree of inventiveness), design patents (external features, i.e., shape, color, and pattern), and invention patents (novel improvement in the product with practical applicability).…”

“…Different from them, this study attempts to investigate the nexus between trade credit demand and enterprise technology investment in large corporations. More importantly, this study foregrounds the influence of operating suppliers on the agency risk of technology investment (Jia et al, 2019; Shahzad, Luo, Pang, et al, 2021), which can be an important learning on the balanced approach to exploitation and exploration.…”

“…Managers sometimes abstain from innovative efforts due to minimum opportunity cost compared to their incentives and the substantial cash hoarding instills growth enviornment (Hall & Lerner, 2010). According to the mainstream agency theory (Jensen & Meckling, 1976), managers always seek a better alternative (Shahzad, Luo, Pang, et al, 2021) and few debt covenants carry perilous terms in this context (Hill & Jones, 1992). Putting the criticism aside that a better alternative is not always accessible (Burt, 1983), the agency theory documents that managers advocate those contracts that offer insurance to their incentives.…”

“…Additionally, managers are more independent in bootstrap financing; it allows larger concession in cash flow (Wilner, 2000) and high financial flexibility (Tomory, 2011; Van Auken, 2005). If enterprise financial setting offers insurance to CEOs freedom, then optimistic behavior has been perceived in technology investment (Shahzad, Luo, Pang, et al, 2021). Thus, an empirical investigation on the nexus between trade credit financing and enterprise innovation can be invaluable, especially for high‐tech enterprises seeking long‐term investment in innovation.…”