The Study Of The Relationship Among Managerial Power,Inefficient Investment And Executive Compensation

With the improvement of the market economic system and the rapid development of economy, more and more people put their focus on issues of the executive compensation and the investment efficiency. Investment behavior is the starting point of enterprises, and also the leverage of enterprises'existence and development. Investment efficiency will affect the business performance of enterprises directly. When inefficient investment behavior brought serious negative effects to the sustainable development of company, the payment for top management should be declining. On the contrary, the payment is increasing, although the scale of inefficient investment becomes larger. This phenomenon is not in accordance with the 'optimal contract theory'based on agent cost, which result in the theory of 'management power'Under the managerial power approach, we select178companies including1194samples from2003to2010to study the relationship among executive compensation, managerial power and inefficient investment in Chinese monopoly industries. The result shows there is a significantly positive relation between managerial power and executive compensation in listed companies of Chinese monopoly industries indicating that top managers can influence their own compensation contracts. It also shows that it is a positive correlation between executive compensation and inefficient investment. The sensitivity of executive compensation and inefficient investment will be varied under different control from top management. The bigger power of top management in enterprises, the more increase of executive compensation led by inefficient investment increase.This paper proves that managerial power and rent extraction are likely to have an important influence on the design of compensation arrangements which makes the executive compensation itself a part of the agency problem, substitute for the approach to the agent problem. Finally, we raise management implications on how to improve the mechanism of executive compensation in Chinese monopoly industries.