The Influence Mechanism Of Control Right' Allocation On Managerial Entrenchment

In the new stage of China's economic and social transformation,the manager entrenchment behavior is widespread existence,owing to imperfect internal and external supervision mechanisms,which seriously reduces the efficiency of enterprise resource allocation.There are many research results about the economic consequences of managerial entrenchment in the existing literature,and there are few research results on how to govern the manager entrenchment behavior.How to prevent and constrain managers' defense behavior has become an important theoretical and practical issue in the corporate governance.On the microscopic level,the manager entrenchment behavior is related to the personal characteristics of the manager and the internal governance of the company.It is related to the characteristics of the enterprise industry on the middle level,and macroscopically related to the external governance environment of the enterprise.Industry characteristics mainly include product market competition and risk uncertainty,the external governance environment mainly includes capital market,degree of market,legal system etc.Managers' entrenchment behavior is closely related to internal and external corporate governance mechanisms.The effectiveness of these factor is lagging and uncontrollable,which depending on the development and perfection of a regional capital market.The manager entrenchment behavior has a direct relationship with the company's internal governance structure.Based on the special ownership structure and control configuration in Chinese listed company,manager management defense behavior is directly related to the allocation of control right.The role of allocation of control right has two sides on the manager's defense behavior.On the one hand,the allocation of control rights has the function of supervising and restricting in the behavior of managers,which can restrain the behavior of management defense.On the other hand,the allocation of control rights of most listed companies in China is unbalanced,affecting corporate governance and management levels,which may induce defensive behavior.Therefore,it is necessary to analyze the governance effect of the allocation of control right on the managerial management.Is the allocation of corporate control rights in Chinese listed company restricting or indulging the managerial defense behavior?What effects of the allocation of control right on managerial entrenchment?How do the allocation of control right on managerial entrenchment?These questions provides the expansion space for this research.The theories and literatures related to the allocation of corporate control rights and managerial defense is arranged,basing on the special corporate governance structure and decision-making mechanism in Chinese company,and following to the logical analysis framework of "control rights configuration(structure)-manager defensive behavior(behavior)-the degree of manager Entrenchment(result)",the paper focuses on the following two question:(1)What effects of the allocation of control right on managerial entrenchment?(2)What is the mechanism of action about the allocation of control rights on manager management defense?As to the first question,What effects of the allocation of control right on managerial entrenchment?From the perspective of corporate governance,the allocation of control rights covers the rights allocation and balances,which include general assembly composition and rules of procedure?board composition and resolution mechanisms?managerial power distribution.The distribution and balance of company control rights largely depend on the actual controller in the micro level,Therefore,the actual controller of the enterprise is the main body of allocation of control right.The characteristics of allocation of control right are described from the two dimensions of actual controller control and balance,according the allocation path at the shareholder?board?and manager level.Since China's A-share listed companies are mature listed companies and have perfect distribution system,the A-share listed companies in China was selected as research objects.There are many managerial entrenchment behaviors,such as preference for equity financing,investment myopia,and lack of R&D investment.The judgment about the defense behavior needs to analyze the specific situation,the manager may did it,but he didn't know.So,managerial entrenchment behaviors are difficult to measure,replacing behavior with results.The effects of the allocation of control right on managerial entrenchment is conversed to the impact of structural characteristic variables in control right to managerial entrenchment,and the theoretical analysis and empirical test are carried out considering the differences in the nature of corporate property rights.As to the second question,the mechanism about allocation of control right on managerial entrenchment.This paper conducts theoretical analysis and empirical tests from two aspects.The first is the impact path study.According to the supervision and incentive mechanism of allocation of control right,from the perspective of internal corporate governance,board governance behavior and managerial discretion are determined as mediator variable.This paper studies the influence path of allocation of control right on managerial entrenchment from the perspective of board governance behavior and managerial discretion.Secondly,considering the situation condition about allocation of control right on manager entrenchment behavior,in the perspective of salary incentives affecting managers' intrinsic motivation,the paper examines the adjustment effect of external unfairness of executive compensation on the relationship between control allocation and manager entrenchmentThe innovative work and achievements are listed as follows:(1)The paper extend the theory about the allocation of control rights,and propose the measurement method of the allocation of control rights.The meaning of enterprise control rights is defined based on the perspective of control power allocation,it is considered that the shareholders' meeting has ultimate control,the board of directors has decision-making control power,and the managerial level has operational control rights.The paper explain the meaning?manifestation and characteristics of each type of control.This paper analysis the checks and balances between the company's controlling powers,revealing that the core of control rights allocation is the distribution and balance of control rights.The allocation of control rights is an important carrier to realize the supervision mechanism and incentive mechanism.Taking the actual controller as the main body of control,from the two dimensions of control degree and balance degree,the decomposition and measurement methods of company control power allocation are proposed according to the control power allocation path,which lays the theoretical basis for subsequent theoretical analysis and empirical analysis(2)The paper test the direct influence effect of allocation of control right' characteristic variables on manager entrenchment using empirical analysis method.Based on the measurement method of allocation of control right,this paper investigates the effect of the characteristics of corporate control allocation on the degree of managerial defense,taking China's A-share listed companies in Shenzhen and Shanghai stock markets from 2013 to 2017 as the research sample.The paper analyze the influence mechanism and propose research hypothesis.The results shows that:the 11 characteristic variables of the control allocation have a significant impact on the degree of managerial defense.When further considering different ownership nature,we find that the effect of allocation of control right characteristics on the degree of managerial defense is significantly different in state-owned enterprises and in non-state-owned enterprises(3)The paper construct the path model of control allocation characteristics affecting manager management defense,and test the mediation effect of board governance behavior and manager autonomy.The allocation of control right mainly affects the management of defense by supervisory mechanisms and incentive mechanisms.The distribution and balance of control in the company determines the effectiveness of the company's internal supervision,which affecting the motivation and ability of the managerial entrenchment;The allocation of control right affects the manager's behavior space,and the manager's control and control returns have incentive effects,which affect the manager's defense opportunities and capabilities.Inadequate supervision and excessive managerial power are main conditions for the manager's defense behavior.The board governance behavior and manager autonomy are determined as the main path of the allocation of control right' characteristic variables affecting the manager's management defense.The empirical test the path that the control configuration features affect the manager's management defense.The mediation effect analysis results show that:(a)The structural characteristic variables about allocation of control right significantly affect the intensity of the governance behavior of the board,which is negatively related to the degree of managerial defense.The governance behavior of the board has a restraining effect on the manager's defense behavior.Board governance behavior plays an intermediary or masking role in the relationship between the allocation of control right and managerial entrenchment.(b)The structural characteristic variables about allocation of control right significantly affect managerial discretion,which is positively related to the degree of managerial defense.The managerial discretion has a promate effect on the manager's defense behavior.The managerial discretion plays an intermediary or masking role in the relationship between the allocation of control right and managerial entrenchment.(c)The characteristic variable about control degree and balance degree in allocation of control right increase the intensity of board governance behavior and reduce managerial autonomy,and have a negative impact on the manager's defense level.(4)Considering the situation condition about allocation of control right to manager management defense,the paper examines the adjustment effect of external unfairness of executive compensation on the relationship between control allocation and managerial defense,from the perspective of salary incentives affecting managers' intrinsic motivation.Executives pay more attention to the external fairness of compensation rather than the amount of compensation.The external unfairness of executive compensation is used as the adjustment variable.The empirical test found that:The external unfairness of managerial compensation is significantly positively correlated with the degree of managerial defense,which significantly adjusts the influence of the characteristic variables of control allocation on the degree of managerial defense.When the external unfairness of executive compensation is higher,the effect of actual controller control,cash flow rights,and the proportion of appointed directors on the managerial defense degree is weakened;The characteristic variables of the balance degree(including the equity balance,the shareholding ratio of the institutional investors,the separation of the two positions of the manager,the proportion of independent directors,the shareholding ratio of the directors,and the shareholding ratio of the manager)on the managerial defense degree is weakened.The incentive effect about second largest shareholder's shareholding ratio on the managerial defense degree is enhancedThe above conclusions reveal the influence process and mechanism of control right on managerial entrenchment,expand and deepen the governance role about control right'allocation,and provides a specific approach to reduce the management defense behavior in listed companies.