The direct participation of executives in patenting activities (executive involvement) can be advantageous due to executives' extensive managerial skills and industry experience but could also lead to managerial rent-seeking, which can distort inventors' innovation choices. Analyzing a large patent dataset and public personal information regarding executives in Chinese listed firms from 2000 to 2017, we find that executive involvement increases the exploitative patent output but not the explorative patent output of connected inventors. We conduct several robustness tests and provide evidence of managerial rent-seeking. Moreover, we reveal that promoting connected inventors decreases the innovation output of unconnected inventors within a firm, making these inventors more likely to switch jobs. Overall, the findings suggest that executive involvement lowers firm innovation quality and diminishes firm performance. These findings suggest that improved external monitoring and evaluation could mitigate the negative effects of executive involvement.

Despite the importance of the personal income tax around the world, little is known about its impact on innovation. We construct a large database of inventors who patented at publicly listed companies during the 2008–2016 period and exploit the revised Personal Income Tax (PIT) Law of 2011 in China as a quasi-natural experiment to establish the causal effect of the personal income tax on corporate innovation. Using a difference-in-differences identification strategy, we show that a lower personal income tax rate has a significantly positive impact on patent quantity and quality. Further, the revised PIT Law raises the efficiency of R&D activities, induces more explorative innovation, and improves the success rate of patent applications, providing consistent evidence for the intentional effort channel. Moreover, this positive innovation effect is more pronounced in firms with an R&D team that is more sensitive to the salary incentive system, greater innovation dependence, better governance, and firms located in regions with better innovation environments. Taken together, our findings shed light on how inventors and firms respond to decreasing personal income tax rates and confirm that the net return to innovation can be vital to the innovation capacity of firms.