Research Paper:
Relationship Between Intellectual Capital, Executive Motivation, and Corporate Innovation Level —Evidence from Chinese Listed Manufacturing Companies
Junyi Ren and Yunhui Yu
School of Economics and Management, Yantai University
No.30 Qingquan Road, Laishan District, Yantai, Shandong 264005, China
Corresponding author
In the knowledge economy era, innovation is the main engine that drives high-quality development of the manufacturing industry. Exploring the mechanism behind intellectual capital, its constituent elements that stimulate innovation within manufacturing enterprises, and the influence of executive motivation emerges as a crucial imperative, considering intellectual capital as the sum of intangible assets of enterprises. Unraveling this intricate interplay becomes essential in comprehending the driving forces behind innovation in this sector. Based on this, the present study analyzed the relationship between intellectual capital, executive incentives, and corporate innovation level using a sample of manufacturing companies listed in Shanghai and Shenzhen A-shares from 2012–2021. The empirical findings demonstrate the positive impact of human capital, structural capital, and relational capital on the innovation levels of manufacturing firms. Moreover, executive compensation incentives and equity incentives also contribute positively to enhancing firm innovation. Notably, these executive incentives play a vital moderating role in strengthening the relationship between intellectual capital dimensions and firm innovation. Intellectual capital dimensions have a stronger impact on innovation levels in non-state-owned manufacturing enterprises than in their state-owned counterparts. Moreover, the positive influence of intellectual capital on innovation is more significant in highly marketized regions compared to regions with lower levels of marketization.
- [1] Z. Su, J. Chen, H. Guo, and D. Wang, “Top management team’s participative decision-making, heterogeneity, and management innovation: An information processing perspective,” Asia Pac. J. Manag., Vol.39, No.1, pp. 149-171, 2022. https://doi.org/10.1007/s10490-021-09752-2
- [2] C. Yu, Y. Wang, T. Li, and C. Lin, “Do top management teams’ expectations and support drive management innovation in small and medium-sized enterprises?,” J. Bus. Res., Vol.142, pp. 88-99, 2022. https://doi.org/10.1016/j.jbusres.2021.12.035
- [3] J. Zhao, T. Chankoson, W. Cheng, and A. Pongtornkulpanich, “Executive compensation incentives, innovation openness and green innovation: Evidence from China’s heavily polluting enterprises,” Eur. J. Innov. Manag., 2023. https://doi.org/10.1108/EJIM-01-2023-0064
- [4] O. Al Farooque, W. Buachoom, and N. Hoang, “Interactive effects of executive compensation, firm performance and corporate governance: Evidence from an Asian market,” Asia Pac. J. Manag., Vol.36, No.4, pp. 1111-1164, 2019. https://doi.org/10.1007/s10490-018-09640-2
- [5] D. Hirshleifer, A. Low, and S. H. Teoh, “Are overconfident CEOs better innovators?,” J. Finance, Vol.67, No.4, pp. 1457-1498, 2012. https://doi.org/10.1111/j.1540-6261.2012.01753.x
- [6] A. Carmona-Lavado, G. Cuevas-Rodríguez, and C. Cabello-Medina, “Social and organizational capital: Building the context for innovation,” Ind. Mark. Manag., Vol.39, No.4, pp. 681-690, 2010. https://doi.org/10.1016/j.indmarman.2009.09.003
- [7] B. M. Fleisher, W. H. McGuire, A. N. Smith, and M. Zhou, “Knowledge capital, innovation, and growth in China,” J. Asian Econ., Vol.39, pp. 31-42, 2015. https://doi.org/10.1016/j.asieco.2015.05.002
- [8] P. Ritala and I. Stefan, “A paradox within the paradox of openness: The knowledge leveraging conundrum in open innovation,” Ind. Mark. Manag., Vol.93, pp. 281-292, 2021. https://doi.org/10.1016/j.indmarman.2021.01.011
- [9] B. Laperche, “Large firms’ knowledge capital and innovation networks,” J. Knowl. Econ., Vol.12, No.1, pp. 183-200, 2021. https://doi.org/10.1007/s13132-016-0391-7
- [10] S. Ur Rehman, H. Elrehail, A. Alsaad, and A. Bhatti, “Intellectual capital and innovative performance: A mediation-moderation perspective,” J. Intellect. Cap., Vol.23, No.5, pp. 998-1024, 2022. https://doi.org/10.1108/JIC-04-2020-0109
- [11] L. Edvinsson and P. Sullivan, “Developing a model for managing intellectual capital,” Eur. Manag. J., Vol.14, No.4, pp. 356-364, 1996. https://doi.org/10.1016/0263-2373(96)00022-9
- [12] M. Del Baldo, D. Giampaoli, M. Macrellino, and N. Bontis, “Intellectual capital’s link with financing opportunities,” J. Intellect. Cap., Vol.24, No.2, pp. 359-374, 2023. https://doi.org/10.1108/JIC-04-2021-0105
- [13] Y. Li, Y. Song, C. Li, and Q. Song, “Intellectual capital, knowledge management and corporate innovation performance—The case of building construction enterprises,” Friends Account., Vol.21, pp. 69-75, 2019 (in Chinese). https://doi.org/10.3969/j.issn.1004-5937.2019.21.013
- [14] N. Nirino, A. Ferraris, N. Miglietta, and A. C. Invernizzi, “Intellectual capital: The missing link in the corporate social responsibility–financial performance relationship,” J. Intellect. Cap., Vol.23, No.2, pp. 420-438, 2022. https://doi.org/10.1108/JIC-02-2020-0038
- [15] K. Akingbola and H. A. van den Berg, “Antecedents, consequences, and context of employee engagement in nonprofit organizations,” Rev. Public Pers. Adm., Vol.39, No.1, pp. 46-74, 2019. https://doi.org/10.1177/0734371X16684910
- [16] M. Buenechea-Elberdin, J. Sáenz, and A. Kianto, “Exploring the role of human capital, renewal capital and entrepreneurial capital in innovation performance in high-tech and low-tech firms,” Knowl. Manag. Res. Pract., Vol.15, No.3, pp. 369-379, 2017. https://doi.org/10.1057/s41275-017-0069-3
- [17] S. Cabrilo and S. Dahms, “How strategic knowledge management drives intellectual capital to superior innovation and market performance,” J. Knowl. Manag., Vol.22, No.3, pp. 621-648, 2018. https://doi.org/10.1108/JKM-07-2017-0309
- [18] N. S. Beltramino, D. García-Perez-de-Lema, and L. E. Valdez-Juárez, “The structural capital, the innovation and the performance of the industrial SMES,” J. Intellect. Cap., Vol.21, No.6, pp. 913-945, 2020. https://doi.org/10.1108/JIC-01-2019-0020
- [19] L. Agostini and A. Nosella, “Enhancing radical innovation performance through intellectual capital components,” J. Intellect. Cap., Vol.18, No.4, pp. 789-806, 2017. https://doi.org/10.1108/JIC-10-2016-0103
- [20] M. Molodchik and C. M. Jardon, “Intellectual capital as enhancer of product novelty: An empirical study of Russian manufacturing SMEs,” J. Intellect. Cap., Vol.18, No.2, pp. 419-436, 2017. https://doi.org/10.1108/JIC-06-2016-0059
- [21] T. Kraśnicka, W. Głód, and M. Wronka-Pośpiech, “Management innovation, pro-innovation organisational culture and enterprise performance: Testing the mediation effect,” Rev. Manag. Sci., Vol.12, No.3, pp. 737-769, 2018. https://doi.org/10.1007/s11846-017-0229-0
- [22] N. Rosenbusch, J. Brinckmann, and A. Bausch, “Is innovation always beneficial? A meta-analysis of the relationship between innovation and performance in SMEs,” J. Bus. Ventur., Vol.26, No.4, pp. 441-457, 2011. https://doi.org/10.1016/j.jbusvent.2009.12.002
- [23] P. Moran, “Structural vs. relational embeddedness: Social capital and managerial performance,” Strateg. Manag. J., Vol.26, No.12, pp. 1129-1151, 2005. https://doi.org/10.1002/smj.486
- [24] S. Long and Z. Liao, “Green relational capital, integration capabilities and environmental innovation adoption: The moderating role of normative pressures,” Sustain. Dev., Vol.31, No.3, pp. 1570-1580, 2023. https://doi.org/10.1002/sd.2467
- [25] N. Bontis, M. Ciambotti, F. Palazzi, and F. Sgro, “Intellectual capital and financial performance in social cooperative enterprises,” J. Intellect. Cap., Vol.19, No.4, pp. 712-731, 2018. https://doi.org/10.1108/JIC-03-2017-0049
- [26] P. Benevene, E. Kong, B. Barbieri, M. Lucchesi, and M. Cortini, “Representation of intellectual capital’s components amongst Italian social enterprises,” J. Intellect. Cap., Vol.18, No.3, pp. 564-587, 2017. https://doi.org/10.1108/JIC-12-2016-0127
- [27] Y. M. Yusoff, M. K. Omar, M. D. K. Zaman, and S. Samad, “Do all elements of green intellectual capital contribute toward business sustainability? Evidence from the Malaysian context using the Partial Least Squares method,” J. Clean. Prod., Vol.234, pp. 626-637, 2019. https://doi.org/10.1016/j.jclepro.2019.06.153
- [28] B. Hong, Z. Li, and D. Minor, “Corporate governance and executive compensation for corporate social responsibility,” J. Bus. Ethics, Vol.136, No.1, pp. 199-213, 2016. https://doi.org/10.1007/s10551-015-2962-0
- [29] S. Bhagat and B. Bolton, “Financial crisis and bank executive incentive compensation,” J. Corp. Finance, Vol.25, pp. 313-341, 2014. https://doi.org/10.1016/j.jcorpfin.2014.01.002
- [30] X. Wang, H. Zou, Y. Zheng, and Z. Jiang, “How will different types of industry policies and their mixes affect the innovation performance of wind power enterprises? Based on dual perspectives of regional innovation environment and enterprise ownership,” J. Environ. Manag., Vol.251, Article No.109586, 2019. https://doi.org/10.1016/j.jenvman.2019.109586
- [31] I. S. Currim, J. Lim, and J. W. Kim, “You get what you pay for: The effect of top executives’ compensation on advertising and R&D spending decisions and stock market return,” J. Mark., Vol.76, No.5, pp. 33-48, 2012. https://doi.org/10.1509/jm.11.0225
- [32] H. Yu and H. Li, “Institutional environment, executive equity incentive, and enterprise innovation: The case of China,” Entrep. Res. J., Vol.14, No.4, pp. 1921-1949, 2023. https://doi.org/10.1515/erj-2022-0383
- [33] C. H. Shen and H. Zhang, “CEO risk incentives and firm performance following R&D increases,” J. Bank. Finance, Vol.37, No.4, pp. 1176-1194, 2013. https://doi.org/10.1016/j.jbankfin.2012.11.018
- [34] I. Ullah, R. M. Hameed, N. Z. Kayani, and Y. Fazal, “CEO ethical leadership and corporate social responsibility: Examining the mediating role of organizational ethical culture and intellectual capital,” J. Manage. Organ., Vol.28, No.1, pp. 99-119, 2022. https://doi.org/10.1017/jmo.2019.48
- [35] S. Ang, S. Slaughter, and K. Y. Ng, “Human capital and institutional determinants of information technology compensation: Modeling multilevel and cross-level interactions,” Manag. Sci., Vol.48, No.11, pp. 1427-1445, 2002. https://doi.org/10.1287/mnsc.48.11.1427.264
- [36] Z. Tian, “Executive equity incentives, employee stock ownership plans, and enterprise performance: Empirical evidence based on environmental uncertainty,” Front. Environ. Sci., Vol.10, Article No.962409, 2022. https://doi.org/10.3389/fenvs.2022.962409
- [37] R. Appuhami and M. Bhuyan, “Examining the influence of corporate governance on intellectual capital efficiency: Evidence from top service firms in Australia,” Manag. Audit. J., Vol.30, Nos.4/5, pp. 347-372, 2015. https://doi.org/10.1108/MAJ-04-2014-1022
- [38] J. Christensen, P. Kent, and J. Stewart, “Corporate governance and company performance in Australia,” Aust. Account. Rev., Vol.20, No.4, pp. 372-386, 2010. https://doi.org/10.1111/j.1835-2561.2010.00108.x
- [39] T. M. Shahwan and A. M. Habib, “Does the efficiency of corporate governance and intellectual capital affect a firm’s financial distress? Evidence from Egypt,” J. Intellect. Cap., Vol.21, No.3, pp. 403-430, 2020. https://doi.org/10.1108/JIC-06-2019-0143
- [40] X. Li, R. Liang, and Q. Wu, “How does ESG rating affect the maturity mismatch of corporate investment and financing?—Based on the perspective of ESG uncertainty,” Nankai Bus. Rev., 2024 (in Chinese).
- [41] V. Liu et al., “Does digital transformation enhance the economic and social value of enterprises?—Theoretical extrapolation and empirical test,” J. China Management Science, Vol.33, No.1, 2024. https://doi-orgs.ytu.yitlink.com:443/10.16381/j.cnki.issn1003-207x.2022.2726
- [42] C. K. Hoi, Q. Wu, and H. Zhang, “Does social capital mitigate agency problems? Evidence from chief executive officer (CEO) compensation,” J. Financ. Econ., Vol.133, No.2, pp. 498-519, 2019. https://doi.org/10.1016/j.jfineco.2019.02.009
- [43] C. S. Armstrong and R. Vashishtha, “Executive stock options, differential risk-taking incentives, and firm value,” J. Financ. Econ., Vol.104, No.1, pp. 70-88, 2012. https://doi.org/10.1016/j.jfineco.2011.11.005
- [44] X. Hu and Z. Deng, “Impact of digital finance on technological efficiency of creative enterprises: Evidence from Chinese capital market,” Malays. E Commer. J., Vol.7, No.1, pp. 42-45, 2023. https://doi.org/10.26480/mecj.01.2023.42.45
- [45] Z. Zhang, X. Wang, and D. Chun, “The u-shaped relationship between intellectual capital and technological innovation: A perspective on enterprise ownership and the moderating effect of CSR,” Sustainability, Vol.13, No.22, Article No.12872, 2021. https://doi.org/10.3390/su132212872
This article is published under a Creative Commons Attribution-NoDerivatives 4.0 Internationa License.