Research On The Theory And Empiricla Test Of Career Concerins

Reform of state-owned enterprises has been an important part of China's economic system restructuring, which started from the 1980s. In order to solve financing problems of state-owned enterprises, the Chinese government opened up its stock market in 1992. State-owned enterprises or state-owned holding enterprises were among the first to have acquired qualification of listing. Therefore, China's state-owned enterprises are closely connected to the development of the Chinese stock market. The stock market in China has made considerable achievements. Back in 2005, it had already ranked No.8 in the world with a total market equity exceeding $500 billion. However, quite a few problems are to be urgently solved, focusing on the quality of listed companies, irrational stock equity structure and poor supervision. It is well known that sound development of stock market relies on sound operation of listed companies. However, internal control, low efficiency and deficit are commonly seen among Chinese listed companies. Liu Lei, Liu Yi and Huang Yan (2004) maintained that the deeper reason of the ineffectiveness of listed company management in China lies in inadequate external governance of state-owned properties. Career concerns offered by the managerial talent market, among others, has attracted the attention from both the theoretical and corporate circles since Fama (1980). Gibbons and Murphy (1992) holds that it is feasible to combine career concerns and explicit compensation incentive to reduce the overall incentive costs and enhance the intensity of incentive. Only in this way can we solve the principal-agent issue in a more effective manner and give full play to the advantage of professional division of labor in the corporate structure, hence promoting technological advance and productivity development.This thesis aims to explore whether the role of career concerns has been recognized when China inspires its senior managers of listed companies, whether career concerns and explicit compensation incentive have been combined, and if so, what kind of results we can draw from this. The empirical results have shown that the complementary relationship between career concerns and explicit compensation incentive, which has found in Gibbons and Murphy(1992), has not appeared in China。This thesis continues to explore the reason of the lack of such complementarity.First, this thesis empirically tests the existence of explicit compensation incentive mechanism in China, which has been explored with a positive result supporting its existence. Second, considering the possibility of basic salary regulation in China, this thesis tests the complementarity from the perspective of in-service expenditure replacing basic salary. The empirical results have shown that such complementarity has not appeared either. Finally, considering the general feature of gradual reform in China, we have made categorization based on the nature of industries, geographical areas and actual controlling personnel, and explore the relationship between career concerns and explicit compensation incentive in different categories of samples. The results have shown that although different incentive measures have been adopted in different areas, such complementarity is still not found. With regard to industry and actual controlling personnel, we have found such complementarity in business industry and those governed by the State-Owned Assets Supervision and Administration Commission of the State Council. However, we have not found the improvement of performance of these listed companies. We have not found such complementarity in other industries and other actual controlling personnel.Therefore, this thesis believes that China, from general, has omitted the roles of career concerns. However, as we know, career concerns can offer incentives only when the agent is comparatively young and faces a long term of office. While the agent is approaching the end-stage of their career, Career concerns works out an opposite impact, i.e. lowering the level of the agent's efforts when other factors remain unchanged. Corresponding to this conclusion, we have found in our samples that corporate performances with a senior manage approaching his retirement is lower than those with longer terms of office. This has shown that career concerns has led to insufficient incentive to senior managers approaching retiring age in China, and thus impacted corporate performances. On the other hand, in-service expenditures have gone much higher, indicating these senior managers are embezzling corporate benefits in exchange of their own.The thesis recommends that in the deepening reform process, China should pay more attention to the career concern, effectively apply the career concern, and improve systematic construction of managerial talent markets. Only in this way can we give better impetus to managerial agents and contribute to healthier operation of listed companies and that of the national economy in general.