Managerial compensation, family firms and firms' innovation: evidence from Indonesia

The purpose of this paper is to examine the impact of executive compensation, family firm concentration, and their association to firm innovation (proxied by R&D activities and intangible assets). Research and development intensity levels imply the firm's long-term commitment to the innovation and development of the firm. Management compensation is one of the fundamental incentives to motivate investing in R&D activities and products of innovation. Our sample consists of 988 Indonesian listed companies for the period of 2013-2017. Overall, the results indicate that the managerial compensation is positively related, whereas family firm concentration is negatively related to firms' innovation (proxied by R&D investment and intangible assets). Findings suggest that total compensation given to executives and commissioners motivates them to invest more in their R&D activities and innovation product. We contribute to the literature on managerial compensation and firm innovation in Indonesian settings. This study provides insight as it uses several proxies and endogeneity tests which confirms the prior studies' result.