A Study Of Publicly Listed Firms In China On The Relationship Between Top Management Team Incentive Mechanism And Firm's Performance

The incentive mechanism of Top Management Team (TMT) in China has drawn a lot of attention from far and near. Based on Agency Cost theory, this article examines the forms and characteristics of China's TMT incentive mechanism. With data from more than 1400 China's publicly listed firms, this paper conducts an empirical study of the relationship between 1) sum of TMT's payment and firm's performance and 2) percentage of TMT's firm shares and firm's performance. The empirical result shows: 1) sum of TMY's payment is positively related to firm's performance; 2) the percentage of TMT's firm shares is positively related to firm's performance. At the same time, by dividing sum of TMT's payment and percentage of TMT's shares into different levels, it also finds that the higher the level of TMT's payment is, the stronger is its relationship with firm's performance; On the contrary, the increase of percentage of TMT's shares isn't necessarily followed with the increase of firm's performance. It takes on an irregular moving trend. Furthermore, TMT's payment incentive mechanism has a stronger positive relationship with firm's performance than that of TMT's share incentive mechanism in China. It also proves the fact from another aspect that TMT's payment is playing a main role in China's TMT incentive mechanisms, whereas the percentage of TMT's shares relatively plays a smaller part in inspiring the top management team in China.The last part of the article concludes and gives some suggestions. The publicly listed firms need to improve TMT incentive mechanism in China. They should gradually increase the role of share incentives and implement both spiritual incentive and physical incentives so that a multi-level, multi-faceted incentive mechanism can be established. At the same time, we can further promote the diversity and efficiency of TMT incentive mechanism by nurturing healthy manager market and capital market, establishing a sound restraint mechanism and improving relevant laws and regulations. Thus the formation of a modern enterprise system can be insured. This study has deepened our insights towards the relationship between TMT's incentive mechanism and firm's performance among China's publicly listed firms. By conducting a study on the relationship between China's TMT incentive mechanism and firm's performance based on a multi-level empirical test, it also helps to filled in the research gap and thus it has further significance.