The effects of R&D expenditure and earnings management on stock options: evidence from market competition

This paper examines the effects of R&D expenditures and earnings management on executive stock options and the effects of the competitiveness of a firm in the industry on R&D and executive stock options under controlling for managerial incentive and corporate governance. The findings are that as R&D of a firm increases, managers are more likely to manipulate earnings to enhance the firm value, thus creating a higher value for stock options. Being more competitive in the industry motivates the firm to broaden business territory, thus it will invest more in R&D to obtain a larger market share. The stronger the competitiveness of a firm and the better the performance are, the more stock options that will be granted to managers.