Study Of The Relationship Between Capital Structure And Executive Compensation Of State-owned Listed Company

With the constant deepening reforming of state-owned enterprises in China, the functionand value of human capital which can be represented by senior executives has more and morebeen carried weight by enterprises. The role of senior managerial personnel, as a kind ofscarce social resource, has been gradually increasing as the modern corporation system in ourcountry getting better, especially in the dominance of state-owned enterprises, the role ofsenior executives shows more prominent. Therefore, in order to avoid the loss of talents andthe alienation of their behaviors, how to use compensation incentive mechanism to improvethe senior management personnel’s working enthusiasm effectively, as well as to constraintheir behaviors reasonably has become a hot research topic. Both the studies at home andabroad show that capital structure, as one of the most important financial decisions incorporate governance, is a vital factor that can influence executive compensation, and therehas a certain correlation between capital structure and executive compensation.This paper is based on the review and analysis of relevant literatures at home and abroadin terms of capital structure and executive compensation, researching on the premise of thenew institutional economics with the principal-agent theory as the core, and on the specialbackground of China’s state-owned enterprises, fully considering the managerialentrenchment behavior of the agent. Establishing panel data of partly state-owned listedcompanies in Shanghai and Shenzhen markets within five years from2007to2011asresearch samples, conducting multiple regression analysis on the correlation between capitalstructure and executive compensation. Introducing the asymmetric information theory throughthe analysis of executive compensation mechanism of state-owned listed companies, standingfrom the game perspective of both sides of principals and agents, to determine the optimalcapital structure. Using the chosen capital structure as a kind of effective incentives to controlagents’ behaviors by the principals and then designing a reasonable incentive mechanism builton the foundation of optimal capital structure, so as to provide some realistic suggestions forthe improvement of executive compensation incentive mechanism of state-owned listedcompanies in our country. There are mainly two innovations in this paper: one is that it deeply analyzes thecomplex principal-agent chain in China’s state-owned enterprise, which could lead to someinevitable impacts on agents’ managerial behaviors. Making an empirical analysis on therelationship between capital structure and executive compensation on the basis of analyzingexecutive’s managerial entrenchment behaviors; The other innovation is that the paper baseson the research of executive compensation decision mechanism, studying from the viewpointof asymmetric information game to determine the optimal capital structure of state-ownedlisted companies in China, then designs out a more reasonable compensation incentivemechanism which relates to the optimal capital structure of corporation.