Research on executive equity incentives and corporate innovation performance: the role of corporate social responsibility

Abstract

Purpose Based on the principal–agent and stakeholder theories, this study aims to put forward an intermediary model to verify the intermediary role of corporate social responsibility (CSR) in executive equity incentives and corporate innovation performance to improve corporate innovation performance. Design/methodology/approach The 2012–2018 A-share listed companies’ disclosure of executive equity incentives data was used as the research sample. This study used CSR as an intermediary to explore the relationship between executive equity incentives and corporate innovation performance. A verification analysis was carried out. Findings The research results show that: a positive correlation exists between executive equity incentives and corporate innovation performance, and executives’ reasonable equity incentives can promote the growth of corporate innovation performance. A positive correlation exists between executive equity incentives and CSR. Implementing equity incentives for executives can stimulate their motivation to assume CSR. A positive correlation exists between CSR and corporate innovation performance. The more a company fulfills its social responsibility, the more it can promote the improvement of corporate innovation performance. CSR plays a mediating role between executive equity incentives and corporate innovation performance. CSR promotes executive equity incentives’ impact on corporate innovation performance and exerts a “complete mediating effect” between the two. Research limitations/implications The number of samples and the time span of samples can be expanded in the future. This research has tested the mediating effect of CSR, but other mediating variables may play a role in the process of executive equity incentives in promoting corporate innovation performance. Further research should be conducted to explore the mediating effect of financing constraints and media attention on corporate innovation performance. This study only verifies the influence of equity incentives on CSR and innovation performance of senior executives. In the future, other incentive methods should be explored, such as salary incentives. Practical implications Foreign research on equity incentives has matured, but the experience of foreign countries cannot necessarily produce the expected effect in China. More than ten years have passed since the China A-share market began implementing equity incentives on December 31, 2005. As of December 31, 2017, about one-third of enterprises in the high-tech industry that had introduced equity incentives had stopped implementing the policy. Data from 2012 to 2018 were selected to analyze the relationship between executive equity incentives, CSR and corporate innovation performance to explore the influence mechanism of equity incentives. This study provides a comprehensive theoretical framework to examine the interaction among executive equity incentives, CSR and corporate innovation performance. Because most previous studies have focused on the relationship between executive equity incentives, CSR and corporate innovation performance, they are rarely been used as an intermediary variable to explore the impact of executive equity incentives on corporate innovation performance. This study explores the impact of executive equity incentives on corporate innovation performance under the influence of CSR. Moreover, this study explores the mediating role of CSR in corporate governance, which provides a new perspective for CSR research and verifies relevant literature on the mediating effect model. Social implications Research countermeasures and suggestions: the research results are significant for enterprises implementing executive equity incentives, fulfilling CSR, enhancing corporate reputation, improving corporate innovation performance and ultimately obtaining market competitiveness. Therefore, the following suggestions are proposed: establish and improve the executive equity incentive mechanism and strengthen the promotion effect of executive equity incentives in CSR and corporate innovation performance. Strengthen the awareness of enterprises to actively fulfill CSR and give full play to the role of CSR in promoting corporate innovation performance. Improve the profitability of enterprises and focus on the promotion effect of enterprise profitability on corporate innovation performance. Originality/value This study focuses on executive equity incentives and introduces CSR as an intermediary variable to explore the influence path of executive equity incentives on corporate innovation performance. Based on the research results, this study takes targeted measures to improve corporate innovation performance and maintain its healthy growth of corporate innovation performance. This is significant in enhancing enterprises’ core competitiveness and promoting the enterprise economy’s sustainable development. Meanwhile, the enterprise has significant reference value in actively fulfilling its CSR and realizing its stable and healthy development.

How uncertainty can determine corporate ESG performance?

“…However, the literature on how environmental uncertainty influences ESG performance is scarce and inconclusive. Some studies have focused on the macro‐level factor of EPU and its impact on ESG or CSR (Çiğdem, 2021; Lin & Li, 2023; Ya‐Ru et al, 2022), but they have not considered the micro‐level factor of environmental uncertainty that varies for each firm depending on its industry, location, and strategy. Moreover, some studies have examined the determinants of ESG performance from different perspectives, such as country‐level factors, firm‐level factors (Sadok et al, 2016), management‐level factors (Hegde Shantaram & Mishra, 2019), and others, but they have not explored how environmental uncertainty affects ESG performance and what mechanisms are involved.…”

“…Moreover, environmental uncertainty affects corporate governance efficiency such as surplus management and audit opinions: when environmental uncertainty is high, management may increase the degree of surplus management to cope with the impact of increased volatility (Ozili, 2021); the risks associated with environmental uncertainty may also prompt auditors to issue more non‐standard audit opinions to reduce possible loss compensation (Viet, 2022). However, environmental uncertainty may stimulate firms' dynamic adjustment ability and organizational learning: organizational learning theory suggests that an unknown environment can bring new knowledge and technology, new opportunities, and firms can exchange and learn from other firms to gain new competitive advantages (Maurizio & Winter, 2002; Ya‐Ru et al, 2022). Finally, environmental uncertainty affects firm performance and growth: when the level of environmental uncertainty is high, firms reduce their investments, which affects their business performance (Tanveer & Qureshi, 2021; Umer et al, 2019).…”

“…China is also a key player in the global ESG landscape, as it has made ambitious commitments to achieve carbon neutrality by 2060 and to improve its social and governance standards (Feng et al, 2020; Jingwen et al, 2022; Xin‐Yu et al, 2023). However, China also faces many challenges and gaps in its ESG performance, such as environmental pollution, social inequality, human rights issues, and corporate governance problems (Çiğdem, 2021; Lin & Li, 2023; Ya‐Ru et al, 2022).…”

The impact of corporate digital strategic orientation on innovation output

“…Referring to Chinese Company Law, we defined the company's executives as its directors, president, vice president, general manager, deputy general manager, secretary of the board of directors, supervisors, and other senior management. Based on existing research [ 32 ], we used the executive holdings ratio to measure executive equity incentives (Share). We measured executive compensation incentives (Pay) using the natural logarithm of the company's mean disclosed compensation for the top three management personnel following the approach by Cai and Liu [ 33 ].…”

Study on the Path of Corporate ESG Performance to Drive Green Innovation--Based on Data of Listed Companies in Sichuan Province

“…Green technology innovation, with green development as its core pursuit, can inject intrinsic power into the sustainable development of China's economy and society. On the one hand, better environmental, social, and governance (ESG) performance of enterprises will gain higher market evaluation and thus attract more institutional investors, which will facilitate enterprises' sustainable access to resources required for green technology innovation to carry out technological innovation activities to enhance their competitive advantage [6]. On the other hand, better ESG performance will give investors more investment measures and reduce the risk of adverse selection, which can better alleviate the financing constraints of enterprises and thus increase R&D investment for green innovation; at the same time, the better the ESG rating of enterprises, the more effectively they can play the role of reputation insurance and motivate listed enterprises to continue their green reform and innovation.…”