A Study On The Effect Of Executive Reputation Incentive In Chinese Listed Companies

The basic characteristic of modem enterprise system is the separation of property ownership and management, which then leads to the discussion of motivation. Among all the other long-term incentive mechanisms, reputation motivation is gradually considered important means to mitigate the principal-agent problems.Through the analysis of a principal-agent dynamic game which repeats infinitely, exogenous uncertainty is eliminated, management cannot hide their real endeavor in front of the principals. Then the executive reputation concerns will be prominent. On the other hand, the study that how the exist of a competitive professional management market can let managers care about reputation verifies the position of reputation incentive mechanism.In spite of the theoretical analyzing results that reputation inspires people, empirical evidences are seldom found systematically about this issue in the real word. And it makes even greater sense to discuss the effect of reputation incentive mechanism under the unique institutional backgrounds of our country.After reviewing current literatures and theories, this thesis tries to describe the potential influences of reputation mechanism on both executive compensation and corporate financial performance by using a data set of "star" managers in Chinese listed company between 2000 and 2007.The thesis is arranged as follows:Part 1:Introduction. Introduce the research background, research purpose, research method used, main contributions, and configuration of the thesis.Part 2:literature review. Review home and aboard researches on executive reputation incentive in 3 aspects:the theoretical principle development of reputation incentive mechanism, the reputation evaluation systems, and the effects of reputation motivation. Then get inspiration from the literature analysis for research perspectives of the thesis. Part 3:theoretical basis and institutional background. Firstly, this part discusses the emergence and development of reputation incentive mechanism on the theoretical basis of the principal-agent theory, the motivation theories, and the human capital theory. Then makes analysis and comments on institutional background about how reputation considerations affect the Chinese senior executives currently, making the topic more specific and accord with national situations.Part 4:includes the variables'design, hypotheses development, sample selection, model design, empirical analysis and explanations. This part mainly tests the effects of reputation motivation on both executive compensation and corporate financial performance by method of variance analysis (ANOVA), correlation analysis and regression analysis.Part 5:summary, conclusions and policy suggestions. Based on the results of Part 4, this part summarizes the effectiveness of executive reputation incentive in China, gives further explanations on all the discoveries, and finally provides policy suggestions refer to both orientation of our reputation motivation reform and future research opportunities.According to the theoretical analysis and empirical test results, new evidences of how the reputation incentive may affect Chinese executives are found. Both of the hypotheses have been initially proved. To be specific, firstly, management compensation grows up after the reputation motivation under the ANOVA, while not so remarkably observed in the regression analysis. Thus demonstrates somewhat stiffness in management compensation contracts but low motivation effects of executive reputation in the sample. When considering about the test result of hypotheses 2, executive reputation incentive does have a negative relation with corporate financial performance in a whole. That is, the senior managers perform well for their agent before their good reputation is built and recognized, but fail to fulfill their duty thereafter. Besides, executive compensation level is found positively related with company performances, company size, the gender "male", and the management tenure in the sample.Over all, this thesis provides a different angle of reputation researches. Taking focuses on the ex post influences of executive reputation incentive, the thesis studies the effects of that after recognition of managers'"good fame" in the society. The empirical test results server as the confirmation that executive reputation concerns, or their "star status" do affect people behaviors in negative ways that the shareholders will never appreciate. Additionally, the analyzing process blazes a new trail in the research method by making importance to ANOVA. Thus, the mechanism of reputation motivation emerges and is carefully examined while other notable factors are controlled.