Impact of CEO pensions on value relevance of R&D expenditures

Abstract

Since CEO pension is unsecured and unfunded liabilities of the firm, it induces CEOs to have long-term incentives towards minimizing their firms’ default risk. Motivated by the unique characteristics of CEO pension, this study investigates the impact of CEO pension on the value relevance of R&D expenditures. Using Tobin’s Q ratio to measure firm value, the empirical results show that CEO pension intensifies the relation between R&D expenditures and Tobin’s Q ratio. The results remain robust in two-stage least square and propensity score matching regression analysis to address the endogeneity issues in the relation between CEO pension and the value relevance of R&D expenditures. In addition, the regression results with ROA and F-score as the alternative dependent variables also confirm that CEO pension intensifies the relation between R&D expenditures and firm value.