Study On The Impact Of Executive Incentive To Risk-taking

Salary incentive and corporate performance relationship has always been the hot topic in academia and practice.Principal-agent theory and incentive theory means that reasonable compensation mode and level can effectively improve the degree of executive to work hard,and to reduce the agency cost,so as to improve corporate performance.After the 2008 financial crisis,many large companies failed,so that its executives' s salary began to be exposed to public view.Executive compensation of listed companies has also been criticized as the main cause of the financial crisis in 2008.It also raised the foreign scholars for the study on the relationship between the executive compensation and corporate risk-taking level,but the domestic research on this problem is not rich.What is the relationship of executive incentive and risk-taking in our country's listed company? Wheather can listed companies' s risk exposures affect firm performance? What is the mechanism among Executive incentive,risk-taking and corporate performance? Wheather the Risk-taking is the intermediary variable between executive incentives and corporate performance? There is no exact answer for those questions.In addition,innovation has been a leading idea of development in our country.From the enterprise point of view,like research and development,innovation investment will be conducive to enterprise development for a long time,but this is a risk "adventure" behavior.How to balance the corporate performance from the perspective of executive incentive and risk-taking behavior such as innovation has become the problem that the enterprise needs to focus on.This article is based on the above background and the problems to study on.Paper logical train of thought is as follows: empirically derived from the theoretical analysis and model.This paper is according to this logic layer to study.In theory analysis part,first of all,,risk-taking and corporate performance are defined: executive is defined as the management of personnel who is the decisive role in the company's business decision,including general manager,deputy general manager,the board secretary and chief financial officer who are regulated in China's company law,and also including the directors and supervisors;And give four compensation methods for research including the monetary compensation,executive pay gap,stock incentive and on-the-job consumption;Define risk-taking as preference choice for the enterprise to conduct which can generally occur in the risk investment projects for investment decisions,and select the accounting index of return on total assets(ROA)and market index of stock returns' volatility as proxy variables;Defines corporate performance as growth and earnings of the enterprise in a certain period,and use them as a kind of evaluation for senior managers in the enterprise business performance;meanwhile,select total return on assets and Tobin's Q as proxy index of corporate performance.Secondly,the paper expounds the principal-agent theory and incentive theory,which is the basis of executive incentive theory,then according to the research content,the literature review is including three parts: the executive incentive and firm performance,executive incentive and risk-taking,risk-taking and corporate performance.In model derived part,first of all,the performance of the risk effect from executive incentive is analyzed.The risk effects are mainly reflected in the underinvestment and overinvestment.Secondly,the cause of the risk effects of executive incentive,including the asymmetry of the incentive and risk,and risk decision-making framework effect,are analyzed.Finally,this paper constructs a dynamic game model of executive incentive-principal-agent risk.Risk-taking should be brought into the company and executives of game analysis framework.Then the relationship among executive incentive,risk-taking and corporate performance is derived in this paper,including that risk-taking affects the performance pay,and short-term risk-taking compensation can improve the growth of company,and company's risk-taking is level negatively influenced by performance pay,and corporate performance and level of risk is related positively.Theoretical analysis and model is the basis of this study.In the empirical part,the main purpose is to test the influence of risk-taking in the process of executive incentive affecting firm performance.According to the intermediary effect inspection steps,this part is divided into three chapters.First of all,the executive incentive effects on risk-taking and corporate performance is inspected.By constructing panel data regression model,the paper selects China's Shanghai and shenzhen listed company as the sample data to test the relationship of those three.The results show that the effect of executive incentive has certain risk-taking effect,especially from monetary compensation and on-the-job consumption,the risk-taking level has a significant impact on company;All four types of incentives have a significant effect on corporate performance: monetary compensation and equity incentive,executive pay gap effectively reduce the agency cost,and have the positive effect on corporate performance.Then the concept of agent "on-the-job consumption is supported.Secondly,risk-taking impact on corporate performance is inspected.From the perspective of market investment and corporate management behavior,the positive correlation between risk-taking and corporate performance is verified empirically.That means high risk can result in high corporate performance.This conclusion is demonstrated in both accounting indicators and the market index.Finally,the mediating effect of risk-taking test is carried out.To summarize the mediating effect of common testing method,the paper selects Sobel test and the Bootstrap method of inspection for this article intermediary effect and builds a mediating effect test models;finally,the inspection result for the most part finds the mediating effect of risk,and is negative for most of them.The specific test results are as follows:(1)in those three types of executives incentives including the monetary compensation,executive pay gap,stock incentive risk-taking intermediary effect on corporate performance are significant;(2)in the types of the monetary compensation and executive pay gap,the mediating effect of risk-taking is significantly negative;(3)under the stock incentive risk-taking intermediary effect under the accounting index is positive,and is negative under the market index;(4)the risk-taking mediating effcet in the process of on-the-job consumption affecting corporate performance has not been inspection.Compared to previous research,the innovation of this article is mainly embodied in the following aspects:(1)this paper researchs the executive incentive,risk-taking and corporate performance systematicly.First of all,the theorical analysis between those three is studied in which includes the assumptions in each chapter;secondly,through analyzing the effect of risk and the causes of executive incentive,based on the principal-agent theory and game theory,the paper puts forward principal-agent game model of executive incentive-risk-taking,the theoretical relationship of executive incentive,risk-taking and corporate performance is derived,the relationship between risks and corporate performance mechanism;Through the above three parts,the paper has finished the theory of the corporate performance;Finally,the empirical test realized the feedback for theoretical analysis;(2)a principal-agent game model of executive incentive & risk-taking is builded.From the perspectives of risk-taking behavior,research and development project is considered as a carrier of risk-taking,and absolute risk aversion for executive is considered as agent variables of risk.Then the paper builds the company-executives-R&D project model which includes three phases in principal-agent game model.Then through the reasonable parameter hypothesis,the optimal effort level of the executive and the optimal decisions of corporate are derived.So that the theoretical relationship among executive incentive risk-taking and corporate performance is concluded;(3)executive pay gap and on-the-job consumption's impact on corporate performance is tested in the perspective of enterprise risk-taking.On the one hand,using the executive pay gap(proxy variable of tournament theory)as a way of executive incentive,the paper studies its influence on enterprise risk-taking level,and verify that tournament theory hypothesis is right;on the other hand,wheather the on-the-job consumption is in line with the agency view or efficiency view is also tested by using our country listed company's data;(4)This paper uses Sobel test and the Bootstrap test to test whether risk-taking is intermediary variables or not in the process of executive incentive affecting the corporate performance.By doing this,the study on mediating effect rises to empirical level,which has a certain theoretical value.