Equity incentives, research and development investment and financial performance among high-tech enterprises

Abstract

High-tech enterprises, as the main drivers of innovation and transformation, played an important role in the implementation of China's innovation strategy. These enterprises used equity incentive mechanisms to attract more outstanding talents; increased their R&D investments, actively enhanced innovation capabilities, and effectively promote the improvement of enterprise performance. Equity incentive data from 454 high-tech enterprises in China for the period 2015 to 2022 were examined. Almost seventy-two percent were large enterprises, 83% were operating between 16-30 years and more than 50% have low asset-liability ratio. Only 13% were growing very fast; 1% of the 454 enterprises have cash flows of more than 1 billion RMB, but more than 50% have medium level of asset turnover. The financial performance significantly varies when enterprises were grouped according to size of the business, asset liability ratio, business growth, cash flow, and total asset turnover. There was a significant negative correlation between equity incentives for management and core employees and financial performance (ROA and ROE) of enterprises. A significant relationship was found between the R&D investment and financial performance of the enterprises. The findings could provide directions for the equity incentive system of high-tech enterprises. Companies should balance the equity incentive levels of management and core employees, and enhance management incentives to promote enterprise development. R&D investment should be increased, in order to enhance competitiveness and longterm sustainable development capabilities.