This study aims to examine how a firm’s domestic performance feedback affects its global value chains (GVCs) R&D engagement, drawing on behavioral theories of the firm (BTOF) and principal-agent theory.
This study uses a fixed-effects regression model to analyze a panel dataset of Chinese companies listed on the Shenzhen and Shanghai stock exchanges from 2007 to 2022.
The findings indicate that when a firm’s domestic performance falls below aspirations, its GVCs R&D engagement decreases, as underperformance triggers the CEO’s negative motivation, leading to a focus on short-term and risk-averse remedies. Conversely, when a firm’s domestic performance exceeds aspirations, its GVCs R&D engagement increases, as overperformance stimulates the CEO’s positive motivation, encouraging the firm to pursue future-oriented and risk-taking activities. In addition, the paper finds that these relationships are moderated by CEOs’ long- and short-term incentives.
Future research can improve by exploring incentive impacts on firms with extreme performance, considering non-listed firms’ governance, using first-hand data and studying complex incentives overlooked due to data limitations.
This study has significant practical implications. First, it reveals how performance feedback influences CEOs’ strategic decisions, emphasizing the need for an effective governance framework to guide rational decision-making under different performance conditions. Second, it highlights the importance of optimizing CEO incentive structures, balancing compensation and equity incentives to encourage risk-taking while preventing excessive ambition. Finally, it offers insights for policymakers, advocating for a macroeconomic environment that fosters R&D within GVCs, promotes corporate innovation, drives industrial upgrading, enhances global competitiveness and supports sustainable economic development.
First, by distinguishing between R&D internationalization and GVCs R&D engagement, it enhances understanding of global innovation strategies and fosters cross-border technological collaboration. Second, it reveals how performance feedback influences firms’ global R&D decisions, helping to optimize corporate governance and strengthen innovation-driven growth. Lastly, by highlighting the differing roles of long- and short-term incentives in CEO decision-making, the study provides valuable insights for policymakers, promoting sustainable innovation within GVCs, driving industrial upgrading, enhancing national competitiveness and ultimately contributing to high-quality global economic development.
To the best of the authors’ knowledge, this study is the first to define GVCs R&D engagement and constructs a cross-border analytical framework based on CEOs’ motivations to elucidate the heterogeneous GVCs R&D engagement resulting from varying domestic performance feedback. It reaffirms BTOF as a “complementary perspective” when integrated with International Business research and provides a detailed explanation of the intrinsic logic behind firms’ GVCs R&D engagement. Furthermore, by introducing long- and short-term incentives as boundary conditions, the study expands the research context of performance feedback and offers practical insights for improving internal corporate governance mechanisms.
