Empirical Research On Executive Compensation,Executive Characteristics And Corporation Risk Behavior

Since human society entered into the end of20th century, particularly the21st century, enterprise operation environment has made fundamental changes. Hence, in order to survive and develop in the complicated and changeable environment, enterprises shall speed up independently technological innovation, reform and innovation of system and management and make appropriate venture investment.Corporation risk behavior connects the enterprise risk with the future returns either on material or reputation, and it’s the motivation of enterprise to realize growth of its value as well. Enterprises should seek a moderate balance in this process. Except the pressure from the outside world, what are other factors that affect corporation risk behavior? The separation of ownership and power of operation in modern enterprise system provides a research prospective for the thesis, that is, due to the existence of the relationship of principle and agent, to retain and to encourage senior executive to serve the enterprise, executive compensation incentive mechanism with appropriate information content can better make isostatic adjustment between interests of senior executive and enterprise’s (shareholder’s) interests, which can guarantee to decrease the possibility that senior executives impair the interests of enterprise’s shareholders in the process of making risk investment. Besides, senior executives, the individual person, may take behavior of excessive risk, appearing the behavior excessive risk-taking which results in the losses of interests of shareholders and value of enterprise. Thus under the background that relationship of principle and agent from in modern enterprise system, what factors will affect corporation risk behavior is the important issue of this study.Meanwhile, researches on director investment field by the thesis shows that many foreign scholars do not take the selective factors of term of service, gender, educational background, age, belief, etc of director which may affect director’s behavior into consideration. Based on this, the thesis makes a research on the influence of executive characteristics such as age, term of service and educational background on corporation risk behavior from the executive characteristics.Additionally, considered the current research results of scholars at home and abroad, the psychological factor of "excessively self-confidence" may affect the occurrence of corporation risk behavior. For this reason, from the angle of principle and agent theory, the thesis make a study on influencing factor of corporation risk behavior, which not only conforms to the typical fact of separation of administrative power and power of operation in modern enterprise, but also divides the influencing factor of corporation risk behavior into executive compensation and executive characteristics by drawing lessons from principle and agent theory. The thesis makes empirical test of influencing factor of corporation risk behavior and completes related theory of corporation risk behavior as well. Meanwhile, the thesis divides the A-share listed company samples of Shanghai and Shenzhen exchanges in2008,2009, and2010into listed company samples in which excessively self-confidence of director exists and listed company samples in which excessively self-confidence does not exist (hereafter refers to as "moderated confidence"). On the basis of the two kinds of samples, the thesis makes a comparative analysis on the influence of executive compensation (including short-term executive compensation and long-term executive compensation) and executive characteristics (including age, term of service and education background) on corporation risk behavior by defining the pattern of explained variable and control variable. Empirical results show that in all the samples, both the long-term executive compensation and short-term executive compensation have a significant relationship with corporation risk behavior, while executive characteristics such as age, tern of service and education background has an insignificant relationship with corporation risk behavior; among the samples of listed company with excessively self-confidence, the executive compensation including short-term executive compensation and long-term executive compensation and age of senior executive have a significant relationship with corporation risk behavior, while these variables are not examined significantly in samples of listed company with moderate confidence; and both term of service and education background of senior executive does not pass significance test.The aim of this research is at: on one hand, expanding the research angle of excessively self-confidence of director and increasing research literature on this field; on the other hand, crystallizing the influencing relationship between executive compensation, executive characteristics and corporation risk behavior.The main research content is organized as follows:Chapter One:Introduction. This part is mainly about the research background and significance of the thesis. Based on it, this part elaborates current related theory at home and abroad and makes a conclusion of literature review and finally puts forward the concrete arrangement of chapter and main innovative points of the thesis.Chapter Two:Discussion about the measurement method of excessively self-confidence of director. This part mainly introduces the methods adopted by domestic and foreign scholars for the measurement of excessively self-confidence. According to literature, the author concludes five types (case of director holding shares; profit forecast by director; evaluation by media; referential variables from the outside world; relevant indicator such as ROA, ROE, and CAR) and finally establishes the method of measuring excessively self-confidence adopted by the thesis in accordance with the situation of China’s listed companies and the research results of the majority of domestic scholars. Then this part makes descriptive statistical analysis of the sample data in2008,2009, and2010by industry, ultimately classifies all the samples by the method of measuring excessively self-confidence and obtains samples of listed companies with excessively self-confidence and samples of listed companies with moderate confidence needed by the thesis.Chapter Three:Theoretical analysis on influencing factor of executive compensation and executive characteristics on corporation risk behavior and hypothesis proposed. This part, mainly according to principle and agent theory, proposes that the effective method to reduce agent cost between shareholder and director is to make an effective executive compensation incentive mechanism. Based on it, the author, according to relevant literature, classifies the executive compensation into short-term executive compensation and long-term executive compensation and discusses the relationship between them and corporation risk behavior respectively. Meanwhile the results of domestic and foreign scholars show that executive characteristics such as term of service, age, etc. affects corporation risk behavior. This part discusses the relationship between executive compensation and executive characteristics and corporation risk behavior and puts forward relevant hypothesis.Chapter Four:Research design and empirical analysis of influencing factors of executive compensation and executive characteristics on corporation risk behavior. First of all, on basis of filtered samples in Chapter Two, this part amply defines the dependent variable, independent variable and control variable, then determines the model of the thesis and makes empirical analysis on the relationship between executive compensation (including short-term executive compensation and long-term executive compensation) and executive characteristics of samples of listed companies in Shanghai Exchange and Shenzhen Exchange and corporation risk behavior. Finally, this part, according to the method of measuring excessively self-confidence of director, classifies whole samples of listed companies into samples of listed companies with excessively self-confidence and samples of listed companies with moderate confidence and discusses the relationship between executive compensation (including short-term executive compensation and long-term executive compensation) and executive characteristics (including age, term of service and education background) and corporation risk behavior.Chapter Five:Conclusion, policy advice and limitations of the thesis. This part comes to the conclusion of the thesis through the results of empirical part in Chapter Four and proposes corresponding countermeasures and advice of the thesis. At the last, this part discusses the deficiencies of the thesis.After making a comprehensive survey of the current research situation, innovative points of the thesis reflects in:One:The thesis combs the method of measuring excessively self-confidence of director in literature. Chapter Two concludes the present method of measuring excessively self-confidence of director by combing relevant literature of scholars at home and abroad. These methods are case of director holding shares; profit forecast by director; evaluation by media; referential variables from the outside world; relevant indicator such as ROA, ROE, and CAR.Two:The thesis makes empirical discussion about the factors which affect corporation risk behavior. On the basis of analytical framework of principle and agent relationship, the thesis makes a study of factors influencing corporation risk behavior and classifies factors influencing corporation risk behavior into two angles of view: executive compensation and executive characteristics. Finally according to relevant empirical data, the thesis gains that either short-term executive compensation and long-term executive compensation has a significant relationship with corporation risk behavior.Three:The thesis differentiates the difference of factors which affect corporation risk behavior in different samples of enlisted companies by samples. On the basis of empirical research on A-share companies enlisted in Shanghai and Shenzhen stock markets, the thesis classifies all samples of enlisted companies into samples of enlisted companies with excessively self-confidence and companies with moderate companies based on whether the enlisted companies have the mentality of excessively self-confidence. Meanwhile the thesis discusses the relationship between two aspects of executive compensation (including short-term executive compensation and long-term of executive compensation) of senior executive and executive characteristics (including age, term of service and education background) with corporation risk behavior. The results show that in the enlisted companies with excessively self-confidence, short-term executive compensation and long-term executive compensation t have significant relationships with corporation risk behavior, that is, short-term executive compensation has positive correlation with corporation risk behavior and passes significance test at the level of1%; long-term executive compensation has negative correlation with corporation risk behavior and passes significance test at the level of5%; age of senior executive has negative correlation with corporation risk behavior and passes significance test at the level of1%. Other independent variables such as term of service and education background do not have a significant relationship with risk behavior either of enlisted companies with excessively self-confidence or enlisted companies with moderate confidence.Additionally, due to objective reasons, the research of the thesis also has certain limitations which are embodied in the following aspects:①the thesis makes research on factors influencing enterprise behavior only from executive compensation and executive characteristics, not from other influencing factors such as features of enterprise and governance mechanism.②Due to the limitation in data collection and technical treatment, the thesis does not take executive characteristics such as gender and term of service into consideration.③The thesis, according to the method measuring excessively self-confidence of director, classifies all the samples of enlisted companies into samples of enlisted companies with excessively self-confidence and moderate confidence, and does not analyze relationship between executive compensation and executive characteristics and corporation risk behavior respectively not from the aspects such as ownership property.