CEO Restricted Stock, Incentives, and Corporate Innovations*

Abstract

We study the relation between CEO restricted stock, CEO incentives, and firm innovation. We first show that restricted stock is negatively associated with R&D investment. We also show that CEO restricted stock is positively related to the number of patents granted and citations received. However, further investigation shows that CEO restricted stock has a positive relation with firm exploitation but a negative relation with firm exploration and breakthrough innovation. The results suggest that restricted stock appears to incentivize CEOs to make efficient R&D investments and produce more innovative outputs in general, but only through exploitation rather than exploration and breakthrough innovations.