Study On The Managerial Entrenchment, Capital Structure And Corporate Performance

In the information asymmetry and incomplete contract circumstances, the interest conflicts between self-benefit managers and shareholders, and the managerial entrenchment behavior, through which the managers strengthen their position and concentrate on perusing their own utility, was inspired. According to the managerial model of capital structure, when managers hold few or no share of their corporation, they would strengthen their position and maximize their own utility by financing activities while they were in constraint, incentive, takeover or bankruptcy. From the view of theory of control right of capital structure this thesis studies the relationship among managerial entrenchment, capital structure and corporate performance in the realistic background of a combination between the super-control of the largest stockholder and insider domination, lower leverage coexisting with lower profit level in the listed corporations.This thesis firstly abstracts theoretical foundation of managerial entrenchment, the relationship between managerial entrenchment and capital structure and the relationship between managerial entrenchment and corporate performance from economic man hypothesis, agency theory, incomplete contract theory, information asymmetry, control right theory, theory of control right of capital structure and upper echelons theory, then constructs the theoretical analysis framework of managerial entrenchment, capital structure and corporate performance. On the above basis, from both empirical and normative study, this thesis uses multiple linear regression, logistic regression, principal component analysis, intermediate effect inspection and structure equation model to explore the four rules, which respectively are the influence of managerial entrenchment on static capital structure, optimization adjustment of capital structure, corporate performance and the conduction of managerial entrenchment through capital structure to corporate performance. In the empirical study, seven factors are selected to estimate the degree of managerial entrenchment through the three aspects which are individual characteristics, incentive and monitoring characteristics of manager. They are manager's age, tenure, diploma, proportion of manager's shareholding, proportion of independent directors, the selection of corporate leadership' structure and ownership concentration. It is found that, the higher the degree of managerial entrenchment is, the lower leverage is, and the managerial entrenchment affects the intention and speed of capital structure adjustment. In the high-leveraged group, more intention of optimization adjustment is consistent with higher speed adjustment, in the lower leverage group, less intention of optimization adjustment is consistent with lower speed adjustment. Moreover, it shows that higher degree of managerial entrenchment leads to worse corporate performance. In addition, we find that the managerial entrenchment affects the corporate performance through the capital structure both in total sample and state-owned sample. Finally, this thesis suggests that it is necessary to improve the professional manager market, re-recognize the incentive to managers, perfect the internal environment which helps to restrict managers and strengthen mechanism of bankruptcy and takeover etc.This thesis bases it research upon the specific institution and background of China, investigates the influence rule of managerial entrenchment on capital structure and corporate performance which were aroused from stock equity concentration and"incompletion"character of controlling shareholder. This study enriches the theory of control right of capital structure to some extent, and provided evidence for inhibiting benefit expropriation of listed corporations, resolving agency problem, optimizing capital structure and promoting corporate performance.