The Study On Endogeneity Of Executive Incentive In Listed Companies

The study on corporate finance is fashionable in domestic academia in latest years. Executive incentive is an important link of corporate finance. The empirical study on correlation of executive incentive and firm performance has been the emphasis. Executive incentive is a very important problem of modern business theory research. Firms in our country mainly motivate executives by giving compensation and stock. However, previous works study on executive incentive affecting firm performance or firm performance affecting executive incentive. These researches exists much limitation because of interaction between executive incentive and firm performance.This paper mainly explores endogeneity of executive incentive, which emphasize interaction of executive compensation, stockholding and firm performance. As"bellwether"of the reform of state-owned enterprise, management performance and inner management mechanism are all superior to other business. Practical effect of executive incentive on listed companies can provide undeniable proof for analyzing inner incentive mechanism in our country. So we centralize our study on interaction of executive incentive, stockholding and firm performance.In order to study endogeneity of executive incentive, this paper gradually analyzes effects of executive stockholding, firm performance on executive compensation; effects of executive compensation, firm performance on executive stockholding; effects of executive compensation, stockholding on firm performance firstly. It further analyzes the limitations of previous researches because of endogeneity of executive incentive after getting the results of certain interaction between them. It subsequently puts forward simultaneous equation model regression to solve the problem. Then it puts previous three equations into one simultaneous equation system and takes regression. It gives conclusions and analyzes it continually. At last, according to regression results and actualities of executive incentive in listed companies, we modify previous simultaneous equation model, take regression again and get final conclusions.Ultimately, we conclude that there are significant interactions between executive incentive and firm performance. It shows that executive incentive is endogenous to firm performance and there exists significant endogeneity in executive compensation. However, there are no evidences to prove endogeneity of executive stockholding. It shows that executive incentive in our country don't have endogenous ownershipstructure, which exist in foreign countries. And there are not enough evidences to prove interaction between executive compensation and executive stockholding. These conclusions are of great theoretical and practical significance. It gives new perspective and empirical evidence theoretically. And it can also guide listed companies to design more effective incentive mechanism.