Executive Compensation And Firm Performance-an Empirical Research Based On Chinese Companies

Senior management plays a very important role in a company. Principal agent theory says, information asymmetry, the different goals between shareholders and senior management, both can generate agency cost. How to reduce the agency cost, making the senior management operate the enterprises in the direction of the shareholders want, has become a hot topic in today’s society. Only the compensation mechanism can solve the issue. Nowadays there are two incentive ways, the short-term incentive plan and long-term incentive plan, but how is the application of the two kinds of incentive methods to the listing corporation, which mode is more suitable for the companies, that is the issue my thesis should discuss.Based on the domestic and foreign research, this thesis took principal-agent theory, incentive theory, human capital theory as the three basic theories, and then selected4597listing corporation during2009to2011as samples, to discuss how does short-term incentive plan and long-term incentive plan affect the correlation between China’s executive compensation and corporate performance. We took the executive compensation as the explained variable, with earnings per share as explanatory variable, and then put the samples into different groups according to controller properties, area, industry. And then, have the following hypothesis. Hypothesis a, in the short-term incentive, executive compensation and corporate performance have significant positive correlation. Hypothesis b, in the long-term incentive, executive compensation and corporate performance has significant positive correlation. Hypothesis c, the effects of long-term incentive is better than short-term incentive effect. Hypothesis d, the effects of the two modes is different when they under different owners. Hypothesis e, the two incentive plans have different effect in different areas. Hypothesis f, the two incentive plans have different effect in different industry. This thesis includes five parts:The first part is the introduction. In this part, we analysis the relation between the executive compensation and corporate performance, and then draws out the issue that will be discussed, in the following, it will explains the significance of this study, the research methodology of this thesis, the content t, basic frame, the innovation of this thesis and literature review.The second part is mainly theoretical, first concept definition of executive, compensation and corporate performance. Then introduce the basis theory, as is the principal-agent theory, incentive theory and human capital theory. And also in this part, we will define the concept of short-term incentive and long-term incentive. If the senior management has both a managerial ownership and cash compensation, we will classify it as a long-term incentive. Otherwise, it will be classified as a short term incentive.The third part is the research hypothesis, in this part, the thesis selected the domestic A shares listing Corporation during2009-2011, and listed a series of variables, and then proposed several hypotheses.The fourth part is the empirical part. First we performed multiple regressions on the total sample, to study how the different incentive mode affects compensation. Then according to the owner ship, area, industry, put the total sample into three different groups, to compare the two incentive plans.The fifth part is the in-depth analysis of the front the empirical results, put forward some suggestions according to the recovered problem.