Abstract: How to motivate executives and employees to support firm R&D activity was an important problem in the innovation research field. Prior research mainly analyzed the relationship between the option plan of executives or employees and firm R&D activity, but there were some studies finding that the option plan did not suite for the firm R&D activity and the intra-firm promotion incentive was suitable for the firm innovation. So, some exterior researchers started to study the impact of executive′s promotion incentive on corporate R&D activity. Until now, there was little research about the relationship between the intra-firm promotion incentive and R&D activity in China.
Compared to the Western countries, social culture in China was totally different which would change the relationship between intra-firm promotion incentive and R&D. Under the Chinese social culture background, this paper investigated the impact of intra-firm promotion incentive on R&D expenditure with a pooled data sample of the 7739 publicly listed Chinese companies for the period 2006-2015. In fact, because there was a complicated pyramid organizational hierarchy in Chinese listed companies, this paper studied the impact of three types of intra-firm promotion incentive which were VP′s promotion incentive, Non-VP′s promotion incentive and common employees′ promotion incentive on firm R&D activity. Specifically, this paper applied STATA12.0 software to construct three OLS modes to investigate the impact of intra-firm promotion incentive in Chinese listed company on R&D activity and draw some below conclusions.
First, VPs′ promotion incentive was significantly negative to R&D expenditure which supported the equity theory, because the promotion probability of VPs was very low and Chinese traditional culture refused the pay dispersion between executives. According to the descriptive statistic, there were two CEO-level executives, five VPs and six Non-VPs. And that VPs and Non-VPs both have the chance of becoming CEO, so the average promotion probability of VPs was the same as 2/11 which made the promotion incentive of VPs unattractive. On the other hand, Chinese traditional culture did not accept the pay dispersion between executives. If VPs think the pay dispersion between CEO and VPs was bigger than what they expected, the pay dispersion or promotion incentive would give rise to the dissatisfaction of VPs so the VPs refused to support the R&D activity.
Second, Non-VPs′ promotion incentive was significantly positive to R&D expenditure which supported the tournament theory, because the promotion probability of Non-VP was high and the pay dispersion between VPs and Non-VPs was attractive for Non-VPs. According to the descriptive statistic, there were five VPs and six Non-VPs, so the average promotion probability of Non-VPs was 6/5. It was easy not difficulty that Non-VPs became VPs easily and the Non-VPs get the bonus which was the pay dispersion between VPs and Non-VPs, so the promotion incentive of Non-VPs could improve the risk preference of Non-VPs and increase the R&D activity.
Third, the promotion incentive of common employee was unrelated to R&D expenditure because the common employees were the actor rather than decision-maker of firm innovation strategy and there were not apparent promotion channels between Non-VPs and employee. In fact, there were too many levels of organizational hierarchy between Non-VPs and employee and it was impossible for employee to become top managers so that the promotion incentive of employee did not work.
In a word, these all above findings showed that the impact of these three kinds of intra-firm promotion incentive on firm R&D was totally different. According to these above conclusions, the firm should decrease the pay dispersion between CEO and VPs and increase the pay dispersion between VPs and Non-VPs in order to improve the firm R&D activity. Meanwhile, the firm should reform the promotion system of employee and increase the attractiveness of intra-firm promotion in order to motive the employee′s innovation activity.

Key words: tournament theory, equity theory, promotion incentive, R&D expenditure