Equity Structure, Executive Compensation And Managerial Myopia

Managerial myopia refers to the company’s sub-optimal investment behavior thatmanagement layer pursuits to meet its own current interests at the cost of sacrificing thelong-term interests of the company. It originates in the company’s principal-agent theory. Theagency cost comes from the separation of ownership and management. The inherentcontradictions of relevant benefit main bodies generate the cost of financing agencies. Theowner of the company increases the supervision and constraint on management in order tomaximize their own interests. Management will take defensive behavior in order to safeguardtheir own interests and to reduce the threat of its occupation. To some extent, managerialmyopia as a means of the dividend policy meets the management’s pursuit of their owninterests, but it runs against the target of maximising shareholder value. Therefore, it becomesthe focus of the study how to establish effective management incentive mechanism to inhibitthe short-sighted behavior of the management and protect the maximization of the companyvalue.The paper uses the method of combining normative research and empirical research.Firstly, the paper reviews the principal-agent theory, the theory of dividend policy, managerialmyopia and other related theories and then puts forward the article hypothesis through thereview and analysis of literature at home and abroad. Secondly, based on wage distortiontheory and equity incentive theory, it analyzes the effect factors of managerial myopia usingthe data from2007to2011of China’s listed companies, with the empirical research methods.Finally, the paper puts forward corresponding suggestions to reduce the management myopiafrom the aspects of the system and environment.Through multivariate regression analysis of the relevance between the equity structure,executive compensation and long-term investment which is the proxy variable of managementmyopia, it draws the following conclusions. Ownership concentration and the proportion ofexecutives shareholding are negatively related to management myopia, and it is significant.Non-state-owned holding company tends to be more serious management myopia than state-owned holding company. There is no obvious correlation between executivecompensation and management myopia.