Research Of Cost Of Capital Effects Of Executive External Compensation Gap

For a long time,too high compensation of state-owned enterprise executives has aroused discontent.From the year of 2009,in order to respond to people's criticism,the government began to publish various documents to strengthen the compensation control for the executives of state-owned enterprises in order to strengthen the control of executive pay in state-owned enterprises,especially in central state-owned enterprises.However,compensation controls will lead to serious moral hazard;that is to say,compensation control will result in hidden corruption,such as excessive perquisite consumption,over investment,job embezzlement and related party transactions.And excessive perquisite consumption is one of the most important recessive acts of corruption.These acts also had damage to the state-owned shareholder wealth.High perquisite consumption also reduces the incentive effect of monetary compensation of executives.Therefore,the government published documents to constraint of perquisite consumption of the executives of state-owned enterprises.In order to cope with document constraints and avoid public supervision,and to get the possible highest interest,executives of state-owned enterprises may also make earnings management to get the possible highest monetary compensation.And may conceal or counterfeit related information to hidden corruption actions such as excessive perquisite consumption,over investment,job embezzlement and related party transactions to a certain extent so as to result in the decline of the quality of accounting information disclosure.Cost of capital is the important benchmark for investment and financing decision of enterprises,and is the important index of evaluating the performance of executives and the level of corporate governance.The cost of capital is lower,the greater the shareholder's actual remuneration rate exceeds the cost of capital,the more wealth the shareholders will have.When executives are encouraged by compensation incentive,executives' enthusiasm for work remains high so that it will help executives keep high job performance,ultimately keep the investment risk of investors,the required rate of return of investors and the cost of capital low.Conversely,it will keep the cost of capital high.When executive compensation incentives and perquisite incentives is excessively high,the agency cost of enterprises increases,The risk of investor wealth damage increases,which will result in too high cost of capital;when executive compensation incentives and perquisite incentives is excessively low,executives will compare incentives to other corporate executives,and will produce unfair psychology,which will lead to a decline in the enthusiasm of the executives,management quality decline and higher capital cost.Because the management quality of executives will directly affect the cost of capital,capital cost is an important index to evaluate the wealth of shareholders;we can take cost of capital as important index to evaluate level of executive work.Therefore,the cost of capital can be used as an important indicator to evaluate whether the executive external compensation gap is reasonable.This paper comprehensively applicates of theoretical model construction and empirical analysis method,based on the theory of fairness and the theory of signal transmission as the theoretical basis.While conducting theoretical analysis,refining the hypothesis and building a model,this paper takes from 2009 to 2016 Chinese two cities of Shenzhen and Shanghai A-share listed companies as the research sample,the empirical study is carried out from three aspects--research on the total effect of executive external compensation gap on cost of capital,research on regulation effect: research on the influence of executive pay gap on capital cost after adjusting variables and on the job consumption,research of intermediary effect: the research effect of intermediary variables on the cost of capital is influenced by the external pay gap of executives through the impact of accounting information disclosure quality.Firstly,this paper makes a statistical analysis of the executive external compensation gap of the whole industry and sub sectors of local state-owned enterprises,central state-owned enterprises and private enterprises executives from 2009 to 2016.As a whole,the executive pay of stateowned enterprises and central enterprises has a trend of decreasing year by year compared with the whole industry and the private enterprises,from the year of 2012,there was negative executive external compensation gap,the gap began to be obvious from the year of 2013,this is related to the government's re issuance of compensation control documents in 2013,and increased year by year.These gaps indicate the effect of compensation control for state-owned enterprises and central enterprises.From the decrease of external compensation for executives of state-owned enterprises and central enterprises,we can make a preliminary expectation of the capital cost of the enterprise: more and more strong pay controls will first reduce agency costs,reduce the risk assessment of investors,reduce cost of capital,and with the further reduction of the executive external compensation gap,executives will produce more and more Unfair psychology,which will result in more and more negative impact to the enthusiasm for its work.In the end,it will have more and more negative effects on the cost of capital.Secondly,this paper analyzes the advantages and disadvantages of the two kinds of capital cost estimation models—for the implicit capital cost estimation model and the risk compensation estimation model so as to determine the selection of cost of capital estimation model for empirical research in this paper.Meanwhile,in this paper,we use GLS model,PEG model,OJ model and CAPM model to estimate the cost of capital in 12 industries from 2009 to 2016,and find that there is a difference between viscosity and industry in the valuation of capital cost of Listed Companies in China.In order to eliminate the impact to capital cost estimation error from these differences as far as possible,in this paper,we choose the average of three estimation models of GLS model,PEG model and OJ model as the empirical part of the cost of capital,and choose CAPM modle for the robustness test of the later text.Thirdly,this paper carries out empirical tests for the correlation between the executive external compensation gap and the cost of capital of the private enterprises and state-owned enterprises from the year of 2009 to 2016.I find out that the correlation between the executive external compensation gap and the cost of capital is U type correlation for executives of state-owned enterprises and private enterprises.Fourthly,in this paper,we add the adjustment variable consumption to empirically test the correlation between the executive external compensation gap and capital cost of state-owned enterprise executives.The test results show that between the year of 2009 and 2012,before the perquisite consumption is greatly inhibited,perquisite consumption weakens the correlation between the executive external compensation gap and capital cost of state-owned enterprise.But between the year of 2013-2016,After the state-owned enterprise's perquisite consumption has been strongly suppressed,perquisite consumption plays an enhanced role in the correlation between executive external compensation gap and capital costs of state-owned enterprise executives.This paper finds the extreme value point of the minimum capital cost caused by the external external compensation gap of state-owned enterprises.Meanwhile,this paper tests the mediating effect of executive compensation control and perquisite consumption inhibition on cost of capital taking the quality of accounting information disclosure as an intermediary variable.Because executive compensation is regulated,executives will make up for it through other means such as excessive perquisite consumption over-investment,job seizures and connected transactions.This paper finds that between 2009 and 2016,the salary control of the central state-owned enterprises will not have a significant impact on the quality of accounting information disclosure,but the salary regulation of local state-owned enterprises will have a negative impact on the quality of accounting information disclosure.That is,the executives of the local state-owned enterprises will carry on the earnings management,or conceal accounting information,or counterfeit accounting information.Meanwhile,The external external compensation gap of executives will indirectly affect the cost of capital through the quality of accounting information disclosure.Through the comparison with the statistical data of the executive external compensation gap in chapter two,we find that the overall average executive external compensation gap of stateowned enterprises during 2013-2016 was lower than the extreme point,and declined year by year,which would result in increase of cost of capital.Finally,based on research before,this paper puts forward the relevant conclusions of the study.Firstly,executive compensation control should maintain proper strength in order to ensure executive strong working enthusiasm,ensure the high quality of executive management and ensure the lower cost of capital.Secondly,the cost of capital to which can help the executive external compensation gap reach the lowest point is the point which can maximize shareholder wealth of executives outside the pay gap.Thirdly,companies should increase the strength of internal and external control to regulate the behavior of the executives,optimize the quality of accounting information disclosure,decrease the risk of investors and decrease the cost of capital.