Research On The Influencing Factors Of Enterprise Risk Behavior Based On Principle-Agent Relationship

The balance between risk and income is important to strategic decisions and operating decisions.This balance determines the risk behavior choice which includes risk taking behavior and risk avoiding behavior.Generally speaking, decision makers choose risk taking behavior when income is bigger than risk, conversly they choose risk avoiding behavior.However, existing research has found the "risk-income paradox", that means risk taking not always promote income.Meanwhile, agent don't have prompting of risk taking because of the principal-agent relationship in modern corporate system, which originates from separation of ownership and control, so agent represents excess risk avoiding or excess risk taking behavior and damages the interest of sharehoder.For example, many century-old financial shop were ruined in subprime crisis because of financial derivatives with high risk, the airline company beared huge loss of hedging because of big risk.These things all rooted in unrational risk behavior.Therefor, this paper focuses on the influencing factors of enterprise risk behavior under the context of principal-agent relationship.Enterprise risk behavior is the hinge which connects risk and income,'and the prime mover of corporate value rise.Along with the deepening of economic globalization, the macroeconomic fluctuation and incontrollable enterprise risk explain that enterprise risk behavior is in a unrational and nonequilibrium state. Besides the reason of more turbulent external environment and increasing complexity and uncertainty, we should seek root of the problem from the the principal-agent relationship inside modern enterprise system.On one hand, the existing of principal-agent relationship is an important influencing factor of enterprise risk behaviors.The separation between ownership and control is a typical characteristic of modern enterprise, due to information asymmetry and interest conflict, the principal and the agent differ on risk behavior choice, risk preference and risk behavior targets.On the other hand, different forms of ownership structure in the modern enterprise system determine whether the enterprise risk behavior is in a equilibrium state or not.The optimal ownership structure is the equilibrium state of enterprise residual claims and residual control, or the maximized matching between risk taker and risk undertaker.In the Modern enterprise, shareholders are risk undertakers because they enjoy residual claims, agent is the risk taker and owns enterprise control power.Therefore,enterprise risk behavior has a characteristic of state dependency.Ownership structure not only decides the risk taker and risk undertaker but also the state of enterprise risk behavior.This paper made principal-agent relationship as the breakthrough point and based on the principal-agent theory.On the one hand, according to the optimal contract design, the principal may inspire agent choose risk behavior live up to the principal's expectation through salary incentive mechanism design.On the other hand, according to the theory of property ownership arrangement, different ownership structure not only determines the enterprise risk behavior taker and the risk behavior undertaker, also the enterprise risk behavior state.Therefore, from the angle of the principal-agent relationship, we find that enterprise risk behavior can have state dependent feature, whether optimal contract design in the principle-agent theory or ownership structure in the corporate ownership theory, the enterprise risk behavior and its state depends on the maximum degree of matching between risk behavior taker and risk behavior undertaker.Under the theoretical background, this paper constructs the influencing factors of enterprise risk behavior based on the principal-agent relationship, and divides the influencing factors of enterprise risk behavior into enterprise risk perception character, manager character and ownership structure character etc.Enterprise risk perception character means the influencing factor which can effect enterprise risk behavior decision-making during the balance between risk and income.lt includes enterprise performance, expected performance, industry performance and slack. We put forward relevant research hypotheses based on the theoretical analysis.We choice manufacturing listed companies in China during 2004-2008 as the sample, use dynamic panel data analysis as the research approach. Results show that enterprise performance has a negative relationship with risk taking in China listed companies.This relationship is influenced by industry performance, expectations performance and slack.The enterprise with low average performance has less risk taking behavior, enterprise will not increase risk-taking behavior for higher performance targets, slack has a negative relationship with risk taking, or unrelated. The manager character refers to the effection of risk preference and salary incentive on enterprise risk behaviors.Under the modern corporate system,the separation between ownership and control makes manager as the risk taker, and determines the enterprise risk behavior state.Risk preference and salary incentive effect on the manager's risk behavior decision-making, thus effect enterprise risk behaviors.We selecte the manager's term of office and age as the alternative variable of risk preference, salary incentive strength as the short-term incentive's alternative variable, manager shareholding ratio as the long-term incentive's alternative variable.We put forward relevant research hypothese based on the influence of risk preference, salary incentive, and the control response of salary.We choice listed companies in China during 2003-2008 as the sample, use dynamic panel data analysis as the research approach.Results show that manager's risk preference and salary incentive have influence on the enterprise risk behavior.Manager's term of office has a positive relationship with enterprise risk behavior, manager's age has a negative relationship with enterprise risk behavior, fixed salary has much effects on the unniformity of risk behavior decision-making and shareholder's interest than managerr shareholding.The ownership structure character refers to the effect of ownership structure on the enterprises risk behavior.Enterprise ownership structure means the distribution of shares, identity and balance, which includes the share concentration ratio, equity ownership and the balance degree.We choice listed companies in China during 2007-2009 as the sample, use dynamic panel data analysis as the research approach.Results show that:First, both state-owned or non-state-owned equity ownership have a positive relationship with enterprise risk behavior, but they have different influence mechanisms.The increase of risk taking behavior because of the "incompatible between incentive and restraint "when the first majority shareholder belongs to state-owned equity ownership.The increase of risk taking behavior because of the "compatible between incentive and restraint"when the first majority shareholder belongs to non-state-owned equity ownership; Second, share concentration has a negative relationship with enterprise risk behavior when the first majority shareholder belongs to state-owned equity ownership, share concentration has a positive relationship with enterprise risk behavior when the first majority shareholder belongs to non-state-owned equity ownership; Third, degree of share balance has a positive relationship with enterprise risk behavior when the first majority shareholder belongs to state-owned equity ownership, share concentration has a negative relationship with enterprise risk behavior when the first majority shareholder belongs to non-state-owned equity ownership.Meanwhile, institutional investor's shareholding ratio has a positive relationship with enterprise risk behavior.We draw the conclusion based on the theoretical analysis and empirical test, also summarize the conclusion and put forward relevant policy suggestions combine with risk behavior decision-making environment and mechanism.The main innovations:â‘ This paper puts forward the state dependent and equilibrium feature of enterprise risk behavior based on the principal-agent relationship.The state dependent feature of enterprise risk behavior originates from different ownership structure, the equilibrium feature of enterprise risk behavior is determined by the maximized matching between enterprise residual claims and control.â‘¡This paper divides influencing factors of enterprise risk behavior into enterprise risk perception character, manager character and ownership structure character.The content of these three character which covers the influencing factors of enterprise risk behaviors were discussed. We put forward the brand-new enterprise risk behavior research framework, the enterprise risk behavior theory is completed.â‘¢This paper not only completes the enterprise risk behavior theory, but puts forward a new theory explanation for the relationship between ownership structure and corporate value.Although existing research believes that there must be some relationship between ownership structure and corporate value, but not unanimous conclusion is arrived.The reason is that the intermediate variables are ignored,we find that enterprise risk behavior is the important intermediate variable between ownership structure and corporate value.â‘£There are some innovations of research approach.First, we use the dynamic panel data in the empirical research on relationship between enterprise risk behavior and performance to solve the endogenous problems, the regression model test error is reduced too; Second, in the empirical test of risk preference, incentive effection on the enterprise risk behavior, we use incentives intensity index instead of absolute quantity index, which gains better control result and conforms to China's current situation.We also consider the interaction of salary incentive intensity, it gains more effective results and theoretical explanation; Finally, the enterprise risk behavior of different ownership identity are discussed.We also test the control response of different ownership identity, it makes conclusion more reliable.However, this paper is still have many shortcomings.Enterprise risk behavior research has certain complexity, the reason is that enterprise risk behaviors research may not only confines in principal-agent framework, it also be affected by the decision-maker utility, expectations and psychological factors.Therefore, how to integrate prospect theory, behavioral decision theory and the principal-agent theory into one theoretical analysis framework will offer the enterprise risk behavior research more comprehensive and more effective theory explanation.