Analyzing the impact of stock options on talent retention and knowledge product generativity at knowledge intensive firms

PurposeSince the subject matters of human resources activities on knowledge intensive firms have been changed by coronavirus disease 2019 (COVID-19) pandemic, this study aims to analyze the impact of stock options on talent retention (knowledge worker retention) and knowledge productivity (innovation) in terms of patents, which directly affect the financial performance of knowledge intensive firms.Design/methodology/approachDrawing on agency and contingency theory to design the causality model, this study analyzes the data obtained from 227 publicly traded knowledge intensive firms in information technology (IT) and healthcare sectors. Panel data analysis is used to determine the long run causal relationship between firm innovation, knowledge worker retention and financial performance, in addition to ANOVA for evaluating firm size as a lurking variable on the effect of stock options.FindingsThe results of this study demonstrate that, when firm size is taken into account, (1) stock options significantly affect knowledge worker retention and firms' financial performance, and this impact is stronger in a during-pandemic situation than in a pre-pandemic situation (2) firm innovation significantly affects firms' financial performance and this impact is stronger in a during-pandemic situation than in a pre-pandemic situation; (3) knowledge worker retention doesn't have a significant impact on firm innovation and firms' financial performance. Moreover, random effect regression analysis for long-term relationships also depicts the same results: knowledge worker retention has non-significant impact on firm innovation and financial performance, but firm innovation significantly affects financial performance.Originality/valueTo the best of the authors' knowledge, the authors are the first to compare the effects of stock options, knowledge worker retention and firm innovation in both pre- and during-pandemic scenarios where firm size is taken into consideration.