CEO stock option pay and R&D spending: a behavioral agency explanation ☆

Abstract This study applies the behavioral agency perspective to investigate the relationship between CEO stock option pay and a firm's R&D spending. This study argues that such a linkage is contingent upon two contextual factors – slack resources and firm performance – that influence the managerial perception of the downside risk associated with R&D investment. Using panel data from four R&D intensive industries, this study shows that the positive impact of CEO stock option pay on R&D spending is more prominent when slack resources are abundant, or when firm performance is high.

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