Do Firms Use Time-Vested Stock-Based Pay to Keep Research and Development Investments Secret?


  • This paper is based on my dissertation at Arizona State University. I am grateful to my dissertation committee members John H. Evans, Michael Mikhail, and Yuhchang Hwang (chair) for their invaluable guidance and support. I also thank seminar participants at the 2009 American Accounting Association Management Accounting Conference, Arizona State University, Harvard University, Northwestern University, University of Chicago, University of Houston, University of Southern California, University of Utah, and University of Washington. Special thanks are due to Ray Ball, Sarah Bonner, Mark DeFond, Mingyi Hung, Christian Leuz, David Maber, Kevin Murphy, Venky Nagar, Jim Ohlson, Mina Pizzini, Tatiana Sandino, Douglas Skinner (the editor), Abbie Smith, K. R. Subramanyam, John Walsh, and two anonymous referees.


I find that executives’ unvested equity holdings are larger when executives are employed by R&D-intensive firms in industries that rely more on secrecy to profit from R&D. Moreover, I find that this relation is more pronounced for executives with a greater ability to exploit R&D-related information and also holds for nonexecutive employees. In addition, I find that these firms use option grants with longer vesting periods and that unvested equity holdings reduce the likelihood that their executives leave to find employment elsewhere. Overall, my findings are consistent with firms using time-vested stock-based pay to reduce the leakage of R&D-related information to competitors through employee mobility.