The Social Capital Of The Senior Management Team, Incentives And Corporate Performance

This paper adopts the main-board public companies listed before2006as research objects, and selects the effective samples of107companies after deducing the ST and SST abnormal samples from total110samples collected in accordance with classic sampling principle. On the basis of theoretical analysis and empirical research, this paper systematically researches into the impact of public company senior management team social capital and incentive mechanism (mainly president’s annual salary and stock option) on enterprise’s operational performance. This paper adopts the public companies’absolute operational performance index, relative operational performance index, the total social capital possessed by senior management team and their annual salary as dependent variables and takes enterprise’s industrial feature, regional feature and senior management team’s population feature as controlled variables. By adopting linear multiple regression model and logistic bivariate regression model, this paper implements quantitative study on senior management team’s social capital and president’s annual salary’s influence on enterprise’s operational performance. Meanwhile, on the basis of the research result, this paper draws the research conclusion and puts forward suggestions on policy.This research puts forward five hypotheses on the basis of building theoretical analysis framework, namely:the significant positive correlation between social capital possessed by senior management team and enterprise’s operational performance (Hypothesis1), the significant positive correlation between senior management team’s salary and enterprise’s operational performance (Hypothesis2), the significant positive correlation between social capital possessed by senior management team and enterprise’s incentive mechanism strength (Hypothesis3), the significant negative correlation between senior management team’s salary and state-owned share ratio (Hypothesis4), and state-owned public enterprise’s incentive mechanism for senior managers focus more on the acquisition of social capital (Hypothesis5).In order to build the empirical analysis model for this research, this paper quantizes senior management team, social capital and other variables. The senior management team includes president, CEO and COO or deputy president (the very first ranking vice president in case of no deputy vice president) and CFO. The senior management team of these three core positions, rather than other positions, will be regarded as the evaluation range of this research. In case that one of these positions serves as the president, other people in the board can be regarded within the range of this research. The social capital adopts social network relationship accumulated through standardization, socialization and systemization. To be specific, the research adopts the network popularity, which means the number of total senior managing positions this team has served in, network height, which means this management team’s reputation score in the highest position, and network reputation range, which means the value difference between the highest score and lowest score, to form the social capital’s comprehensive variable through factor analysis. These three indexes to indicate social capital level will be generated from information source, mainly the annual reports, half-year reports, and seasonal reports, issued by public companies. In case that such information is not accessible from issued information source, this paper will adopt public channels, mainly information queried from Baidu.com, Google.com and other formal publications, to get relevant information substitution. Judged from it, the social capital adopted in this paper is able to use quantitative index for operational definition, and its analytical level is different from the social capital of macro level and medium level. Instead, it means the individual’s social capitation possession in a micro level. Since the information source issued by public companies only include annual salary rather than bonus and allowance, the invisible income will be inaccessible. Therefore, the salary data for senior management team in this research means the annual salary part of them, while stock right and option right will be taken into the evaluation model in the form of virtual variables. In order to indicate the comprehensive operational performance, the performance index adopted by this research includes absolute performance indicator and relative performance indicator. Absolute performance indicator includes profit per share, revenue per share and combined performance. Relative performance indicator includes growth rate of profit per share, growth rate of revenue per share and growth rate of the combined performance. The weight of the revenue per share and growth rate of the revenue per share is60%and the weight of profit per share and growth rate of the profit per share is40%. The reason of adopting this weighted index is that annual total income is an objective performance data that cannot be easily influenced by finance system, accounting method or information launch way. Based on it, this paper introduces the enterprise’s basic features, senior management team’s individual feature and other controlled variables to establish empirical research model for the sake of analyzing the influence of senior management team’s social capital and annual salary on enterprise’s absolute operational performance and relative operational performance.On the basis of theoretical analysis and empirical research, this paper gains the below conclusions:firstly, there is a significant positive correlation between senior management team’s social capital and enterprise’s operational performance, which proves the Hypothesis1. Secondly, there is a significant positive correlation between senior management team’s salary and enterprise’s operational performance, which proves the Hypothesis2. Thirdly, there is a significant positive correlation between management team’s social capital and enterprise’s motivation strength, which proves the Hypothesis3. Fourthly, there is a significant negative correlation between senior management team’s salary and state-own share ratio, which proves the Hypothesis4. Fifthly, the state-owned public enterprise’s senior managing team motivation system focuses more on the acquisition of social capital, which proves the Hypothesis5. These research results shall provide valuable reference to optimizing incentive mechanism for senior management team, improving corporate governance theory, enhance the principle-agent theory and enriching social capital theory.The innovations of this research lie in following aspects:firstly, the paper puts forward the evaluation mode for senior management team’s social capital. This paper, on the basis of enterprise motivation theory and social capital theory, after combining the information launch features of public companies in Shanghai Stock Market and Shenzhen Stock Market, establishes the evaluation model for senior management team’s social capital. Meanwhile, this paper adopts factor analysis and other calculation technique to integrate social capital into operational performance. According to author’s experience, it’s the first research of this kind in China. Secondly, this research takes social capital as incentive mechanism’s endogenous variables, while most domestic and international researches focus on evaluating senior manager’s motivation factors including population features and or human capital features based on motivation theory. This paper, by adopting endogenous variable in incentive mechanism for senior managers, provides theoretical reference and practice guidance to evaluating senior manager incentive mechanism during transactional period and improving enterprise managing structure during transactional period. Thirdly, this research establishes the optimized motivation model based on Incomplete Contract Theory. This paper, on the basis of theoretical research and empirical analysis, establishes the optimized motivation model based on Incomplete Contract Theory. The transactional period in china, in addition to original population feature, salary system and stock option motivations, social capital becomes more and more significant. This research, based on theoretical researches and empirical analysis, further optimizes motivation model for senior managers. The establishment of this model shall provide reference and guidance to improving motivation theory and enterprise managing structure. Fourthly, this research is the first one of this kind to put forward the excess income of social capital theory. Thought there a number of domestic and international researches on social capital, this paper is the first one to systematically introduce the relationship among social capital excess income, enterprise’s operational performance and incentive mechanism. Therefore, this research, on the basis of theoretical analysis and empirical research, creates the social capital excess income theory, which will be of great theoretical and practical significance.However, due to limitation in time, energy and knowledge, there are some defects of this research. Generally speaking, the defects are mainly as below: firstly, the sample quantity of empirical research has much room for improvement, and the most ideal case shall be full sample research. Secondly, the conclusion of this research cannot be widely adopted. Since all samples of this research are public companies, it needs further test to check whether this research result is adaptable to both public companies and private companies. Thirdly, the function of social capital needs further improvement. This research analyzes the influence of senior manager’s salary and senior managing team’s social capital on enterprise’s operational performance. However, it fails to research into the functional micro mechanism of senior management team’s social capital in improving enterprise’s operational performance. For example whether social capital is effective in gaining government resource to causes positive influence to enterprise’s operational performance or is effective in enlarging market to causes positive influence in enterprise’s operational performance is still hard to be determined accurately based on current data.Judged from the structure of this paper, the Chapter1is the introduction, which includes the macro background, research significance, research content, research method, innovations and defects of this research. The Chapter2introduces the relevant theories and empirical researches. Chapter3establishes a theoretical analysis framework for social capital and senior managers incentive mechanism. Chapter4statistics senior management team’s social capital, incentive mechanism and enterprise’s performance. Chapter5implements empirical research on senior manger’s social capital and operational performance. Chapter6implements empirical research on senior manager salary system and operational performance. Chapter7includes research result, policy suggestion and expectation for further researches.