*3.3. Variables*

#### 3.3.1. Financially Sustainable Performance

The existing literature focusses on financially sustainable performance from di fferent perspectives and there is no unified conclusion based on measurement methods. Di fferent measurement methods have their own advantages and disadvantages. Considering the data characteristics and the comprehensiveness of the evaluation indicators, we used the factor analysis method to measure financially sustainable performance. According to the article by Sher and Yang [45], this paper divided financially sustainable performance into two dimensions: short-term profitability and long-term development capacity.


First, we performed KMO and Bartlett tests on the sample data. The results show that the value of KMO is 0.695, which is greater than 0.5, indicating that the factor analysis method is appropriate. The Bartlett test has a *p* value of 0.000, which also indicates that the sample data are valid for factor analysis. Second, we extracted the common factor and performed dimension reduction of the principal components. The results are shown in Table 1. The cumulative contribution rate of the two principal component factors reached 90.119%, indicating that the indicator system retains most information of original variables. Finally, we established a load matrix for the two principal components factors. The results are shown in Table 2. Then we built the following comprehensive indicators of short-term profitability and long-term development capacity.

$$STP = (0.893ROA + 0.842ROE + 0.851OPM)/3\tag{1}$$

$$LTD = \left(0.961 EPS + 0.907NPGR + 0.912TAGB\right)/3\tag{2}$$

**Table 1.** Total variance explained.



#### 3.3.2. RD Investment

The RD investment includes a series of investments such as scientific and technological talents, RD funds, and mechanical equipment. We follow Cumming et al. [51] and used the proportion of RD expenditure in operating revenue to represent RD investment.

#### 3.3.3. Executive Incentives

This paper defined enterprise executives as all supervisors, directors, managers, presidents, and board secretaries [37]. The long-term equity incentives (EI) are represented by the sum ratio of executives' shareholdings (in millions RMB). The short-term salary incentives (SI) are represented by the total annual salary of executives.

#### 3.3.4. Control Variables (C)

This paper mainly considered the following variables: the company size (Size), leverage ratio (Lev), ownership concentration (Own), the nature of ownership (State), the proportion of independent directors (Indep), board size (BS), industrial (Industry) and annual (Year) fixed effect [52–54].
