Incentives to Innovate: Profit Sharing and Employee Health and Safety

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master_Lehtinen_Minna_2018.pdf (1.01 MB)

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School of Business | Master's thesis
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Date

2018

Department

Rahoituksen laitos

Major/Subject

Mcode

Degree programme

Finance

Language

en

Pages

48 + 4

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Abstract

Corporate innovation has long been established as a key strategic factor to ensure economic growth and competitive advantage of firms. This novel study contributes to the underexamined fields of non-executive and non-monetary incentives to innovate. I empirically study the effect of profit sharing programs that are targeted to the majority of a firm’s employees on corporate innovation. In addition, I test how health and safety concerns in a firm impact its innovativeness. In my data, profit sharing program occurs in a firm when there is a clear link between the profit of the company and the employee compensation in a given period. Health and safety concerns covered in the dataset are, for instance, workplace accidents, injuries, and fatalities. My final sample consists of 2,686 firm-years and involves U.S. firms jointly covered in the NBER Patent and Citation Database, MSCI ESG KLD STATS database and Compustat between 1995 and 2003. I assess the use of profit sharing and the occurrence of health and safety concerns with dummy variables. To measure corporate innovation, I follow earlier literature and use the numbers of patents, patent citations, and them scaled with R&D expenses. In addition, I include several control variables, including firm size, executive compensation and capital expenditures. As methodology, I use standard OLS regressions and negative binomial regressions. This study shows support to the importance of non-executive and non-monetary innovation incentives. I find a positive and significant effect of profit sharing programs, and a negative and significant effect of health and safety concerns, on all the aforementioned innovation measures. However, I do not find significant results when running additional regressions with R&D expenses scaled by assets as innovation measure. Furthermore, I find that the impacts of profit sharing and health and safety concerns on innovation are more pronounced in those firms, where the input of non-executive employees is stronger. However, I do not find any significant differences when testing whether the effects are larger in firms with less free-riding. I also examine closer how profit sharing affects innovation in firms where the use of profit sharing programs has changed, but I do not find that the firms would have been more innovative in those years when profit sharing was in use.

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Thesis advisor

Nyberg, Peter

Keywords

corporate innovation, innovation incentives, profit sharing, employee health and safety

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https://urn.fi/URN:NBN:fi:aalto-201806293960

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[gradu] Kauppakorkeakoulu / BIZ