The Incentive Of Top Management And Firm Performance: Evidences From Listed Firms In China

Executive incentive problem derives on the separation of ownership rights frommanagement rights in modern enterprises, there are many problems such as differentobjectives, information asymmetry which exist in modern enterprises between ownersand executives. The complexity and uncertainty of operating enterprise urged thegravity of this problem. We can solve it through designing and carrying out a benignincentive scheme. In knowledge economy era, the competition among enterprises inessence is the competition of person with ability. Executives become the core resourceof modern enterprise, and excellent executives is rare, so how to attract and motivateexecutives to devote effect to enterprises’ operating to enhance the profits of enterprisesis the key to the development of enterprises, furthermore, executive incentive has thiseffect.This paper mainly analyzed the relationship between executive incentive andcorporate performance in China; we distinguished between state-owned listed companyand private listed company by the ultimate controlling principle. Besides, we studied therelationship between political incentive, corporate performance and corporateperformance about the state-owned listed company, and the relationship betweenpolitical incentive and corporate performance about private listed company. Finally, weexamined the benefits of private listed company executives’ Political identity.For state-owned listed companies, the study found that company executives’compensation can’t significantly improve the corporate performance, but the equityincentive and corporate performance has positive correlation, and there is a positiverelationship between political incentives and company performance in general.Company executives shareholding is generally not high, equity incentive as a kind ofeffective incentives have not been very good use. With the increase of corporateperformance, the chairman can more easily gain political promotion, while the generalmanager to get a material reward. When there is an opportunity for promotion, politicalincentives and material incentives have a certain relationship between alternative.For private listed companies, the study found that the political incentives is thecomplement of the material incentives, the political incentives, to some extent, caneffectively motivate executives to seriously run the company, but governmentintervention is not conducive to corporate performance. Also, we found that executives who have the political status can bring the company financing convenience, especiallyin areas of strong government intervention.