Industry tournament incentives and corporate innovation strategies

Lingfei Kong, Gunratan Lonare and Ahmet Nart

Journal of Financial Research, 2022, vol. 45, issue 1, 124-161

Abstract: In this article we examine how the tournament‐like progression in the CEO labor market influences corporate innovation strategies. By exploiting a text‐based proxy for product innovation based on product descriptions from 10‐Ks, we find a positive and significant relation between industry tournament incentives (ITIs) and product innovation. We then explore the trade‐off effects of ITIs on product innovation created through long‐term patenting technologies and short‐term product development. We discover that ITIs strengthen short‐term innovation but decrease patent‐based innovation. Further analyses show that the effect of ITIs on product innovation is stronger when the product market is more competitive and when CEO characteristics indicate a higher probability of winning the tournament prize.

Date: 2022
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https://doi.org/10.1111/jfir.12270

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfnres:v:45:y:2022:i:1:p:124-161

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