Make or Buy New Technology – a CEO Compensation Contract’s Role in a Firm’s Route to Innovation
Firms obtain new technology either through internal R&D or through acquisitions. These two approaches are usually labeled as "make" and "buy" strategies. In this paper, I examine the relation between a firm's choice of "make" or "buy" and the performa...
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| Format: | Working Paper |
| Language: | en_US |
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2004
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| Online Access: | http://hdl.handle.net/1721.1/4049 |
| _version_ | 1811070208627965952 |
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| author | Xue, Yanfeng |
| author_facet | Xue, Yanfeng |
| author_sort | Xue, Yanfeng |
| collection | MIT |
| description | Firms obtain new technology either through internal R&D or through acquisitions. These two approaches are usually labeled as "make" and "buy" strategies. In this paper, I examine the relation between a firm's choice of "make" or "buy" and the performance measures used in the firm's CEO compensation contract. I focus on the two major differences between "make" and "buy" strategies: the risk levels and accounting treatments. I then examine the differential implications of accounting-based and stock-based performance measures on managers' incentive in choosing between the two strategies. Using data from US high tech industries, I find that, firms relying on "buy" approach to obtain technology tend to depend more on the accounting-based performance measures, while those firms who innovate through R&D activities skew toward stock-based pay especially stock options |
| first_indexed | 2024-09-23T08:32:11Z |
| format | Working Paper |
| id | mit-1721.1/4049 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T08:32:11Z |
| publishDate | 2004 |
| record_format | dspace |
| spelling | mit-1721.1/40492019-04-09T18:24:41Z Make or Buy New Technology – a CEO Compensation Contract’s Role in a Firm’s Route to Innovation Xue, Yanfeng R&D Acquisition Compensation Technology Firms obtain new technology either through internal R&D or through acquisitions. These two approaches are usually labeled as "make" and "buy" strategies. In this paper, I examine the relation between a firm's choice of "make" or "buy" and the performance measures used in the firm's CEO compensation contract. I focus on the two major differences between "make" and "buy" strategies: the risk levels and accounting treatments. I then examine the differential implications of accounting-based and stock-based performance measures on managers' incentive in choosing between the two strategies. Using data from US high tech industries, I find that, firms relying on "buy" approach to obtain technology tend to depend more on the accounting-based performance measures, while those firms who innovate through R&D activities skew toward stock-based pay especially stock options 2004-02-13T19:27:21Z 2004-02-13T19:27:21Z 2004-02-13T19:27:21Z Working Paper http://hdl.handle.net/1721.1/4049 en_US MIT Sloan School of Management Working Paper;4436-03 194036 bytes application/pdf application/pdf |
| spellingShingle | R&D Acquisition Compensation Technology Xue, Yanfeng Make or Buy New Technology – a CEO Compensation Contract’s Role in a Firm’s Route to Innovation |
| title | Make or Buy New Technology – a CEO Compensation Contract’s Role in a Firm’s Route to Innovation |
| title_full | Make or Buy New Technology – a CEO Compensation Contract’s Role in a Firm’s Route to Innovation |
| title_fullStr | Make or Buy New Technology – a CEO Compensation Contract’s Role in a Firm’s Route to Innovation |
| title_full_unstemmed | Make or Buy New Technology – a CEO Compensation Contract’s Role in a Firm’s Route to Innovation |
| title_short | Make or Buy New Technology – a CEO Compensation Contract’s Role in a Firm’s Route to Innovation |
| title_sort | make or buy new technology a ceo compensation contract s role in a firm s route to innovation |
| topic | R&D Acquisition Compensation Technology |
| url | http://hdl.handle.net/1721.1/4049 |
| work_keys_str_mv | AT xueyanfeng makeorbuynewtechnologyaceocompensationcontractsroleinafirmsroutetoinnovation |