Unintended Consequences of Outcome Based Compensation: How CEO Bonuses, Stocks and Stock Options Affect Their Firms' Patent Litigation

Nikolaos Papageorgiadis, Andreas Procopiou, Wolfgang Sofka

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

Enforcing a firm’s patents in court is crucial for defending its competitive advantage. CEOs are central for making these strategic decisions but we know little about how their individual incentives shape them. We integrate theory from outcome based CEO compensation designs into models ex-plaining firms’ decisions to become plaintiffs in patent litigation. Based on how compensation shapes time horizons and risk taking of CEOs, we predict that CEO compensation tied to stock increases the firm’s likelihood to enforce patents in court, while bonuses and stock options reduce it. We test and support these hypotheses for 2,685 US firms with 4,733 different CEOs and 3,138 patent litigation cases between 1997 and 2015. These results have implications for theory and practice in assessing risks for patent litigation.
Original languageEnglish
Publication date2021
Number of pages33
Publication statusPublished - 2021
EventDRUID21 Conference - Copenhagen Business School, Frederiksberg, Denmark
Duration: 18 Oct 202120 Oct 2021
Conference number: 42
https://conference.druid.dk/Druid/?confId=62

Conference

ConferenceDRUID21 Conference
Number42
LocationCopenhagen Business School
CountryDenmark
CityFrederiksberg
Period18/10/202120/10/2021
Internet address

Keywords

  • Patent enforcement
  • Patent litigation
  • Compensation
  • Stock options

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