Indirect effect of leaders’ incentive system type on financial performance through the level of innovation

Habib Affes

Abstract

This article focuses on the relationship between the leaders’ incentive system type and financial performance through the level of innovation in the Tunisian context from a cognitive perspective of corporate governance. The method used in this study is based on the regression analysis. We directly address the leaders’ incentive system type and the firm level of innovation on financial performance. Our model includes some control variables such as the firm’s size, the firm’s sector of activity and even whether the firm is listed or not. We empirically demonstrate that the relationship between the leaders’ incentive system type and financial performance is mediated by firm innovation level. In the same way, we demonstrate that the compensation system which is based on long-term objectives has an influence on the determination of the financial performance through the innovation policies in Tunisian firms.