Incentives to innovate in response to competition: the role of agency costs
This paper investigates the role of managerial ownership and incentive payment as potential drivers of innovation decisions by firms and as shifters of the competition-innovation link in Russian manufacturing industry, where poorly protected property rights and path dependent market structure (typical for many transition economies) leads to a variety of outcomes. We use recent survey-based microdata for nearly 2000 non-listed companies in Russia. Our results suggest that managerial ownership, which initially evolved as a means of protecting against and resisting dysfunctional institutions, may stimulate decisions to undertake R&D and risky product innovations. Futher, managerial ownership and competition are complementary motivations for R&D and innovation. Incentive payment to hired managers. Incentive payment to hired managers is a positive commitment instrument but it has no impact on competition-innovation link.