9. The effect of organizational reward and control on firm innovation and financial performance in Chinese technology firms

Recent literature has witnessed increasing attention to the growth of high technology firms in emerging markets such as China, India and Russia (Bruton & Rubanik, 2002; Li & Atuahene-Gima, 2001; The Economist, 2004). The development of technology firms represents a driving force for economic transformation in these emerging markets. Technology firms not only help develop new wealth, but also create new employment opportunities. For example, in Zhongguancun Science Park in Beijing, China, there were more than 9500 firms with 400 000 employees and industrial outputs of US$22.8 billion up to 2002. This output contributed two-thirds of the industrial growth of Beijing (Beijing Bureau of Statistics, 2002). The importance of technology firms for wealth and job creation has led researchers to search for factors that predict these firms’ survival and success. Several scholars have demonstrated that firm innovation in the form of new products and processes has become increasingly important as a way for technology firms to achieve competitive advantages (Eisenhardt & Schoonhoven, 1990; Li & Atuahene-Gima, 2001). However, firm innovation does not occur in a vacuum. To ensure success in the development of new products or new processes, it is important for technology firms to manage effectively (for example, with reward, and control) their innovating employees to improve firm performance. Previous studies on the organizational reward–innovation relationship have reported mixed results. Some researchers have shown that material rewards (such as bonuses and pay increases) can encourage innovation (for example, Baer, 1997, Eisenberger & Cameron, 1996) while others have disclosed evidence to the contrary; for example, Amabile and colleagues (for example, Amabile, 1983; Amabile, Hennessey & Grossman, 1986;