Firms obtain new technology either through internal R&D or through acquisitions. These two approaches are usually labeled as "make" and "buy" strategies. In this paper, I examine the relation between a firm's choice of "make" or "buy" and the performance measures used in the firm's CEO compensation contract. I focus on the two major differences between "make" and "buy" strategies: the risk levels and accounting treatments. I then examine the differential implications of accounting-based and stock-based performance measures on managers' incentive in choosing between the two strategies. Using data from US high tech industries, I find that, firms relying on "buy" approach to obtain technology tend to depend more on the accounting-based performance measures, while those firms who innovate through R&D activities skew toward stock-based pay especially stock options
| Identifer | oai:union.ndltd.org:MIT/oai:dspace.mit.edu:1721.1/4049 |
| Date | 13 February 2004 |
| Creators | Xue, Yanfeng |
| Source Sets | M.I.T. Theses and Dissertation |
| Language | en_US |
| Detected Language | English |
| Type | Working Paper |
| Format | 194036 bytes, application/pdf |
| Relation | MIT Sloan School of Management Working Paper;4436-03 |
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