Research On The Relationship Between Management Incentive And Inefficient Investment

In recent years, researches on the relationship between management incentives and enterprise performance have been taken a lot by scholars, and there has much rich harvest. But such researches on the relationship between management incentives and the intermediate variable of enterprise performance——investment behavior, are relatively lacking, and there is no unified conclusion. As the corporate governance mechanism of management incentives, salary is supposed to guide managers to make advantageous decisions for enterprises. However, it is generally found that, because of the principal-agent and information asymmetry problems between shareholders and managers, enterprises are often prone to over-investment or under-investment. Taking inefficient investment as the original focus to go on the investigation and research of management incentives can examine the effects of management incentives in Chinese enterprises from another point of view, so it has important practical significance.At first, the research reviews the literature of the relation between management incentives and enterprise performance, the relation between management incentives and non-efficiency investment, then combine with the actual situation of our country. Next, the paper divides management incentives into two aspects:explicit incentive and implicit incentive, and discusses the impact on corporate inefficient investment from three dimensions on monetary compensation, equity incentive and perk. In addition, the paper also discusses the governance effect of the implementation of equity incentive plan on inefficient investment. Last, using data of listed companies which have A-shares on SHENZHEN EXCHANGE and SHANGHAI EXCHANGE from2009-2011year, the paper establishes the linear regression model to exam the relationship between company management incentive and corporate inefficient investment.The empirical results show that:The level of monetary compensation is negatively associated with both over-investment and under-investment; the level of equity incentive is negatively associated with under-investment but not with over-investment; the level of perk is positively associated with both over-investment and under-investment; the implementation of equity incentive plan is negatively associated with under-investment but not with over-investment; the implementation of equity incentive plan and management ownership have not showed the common governance effect on inefficient investment. Finally, based on the research conclusion, from the monetary compensation, equity incentive, perk, the Remuneration Committee and manager market perspective, the paper proposes recommendations to improve the incentive effects of Chinese listed corporation, prompts the listed corporation to optimize and improve management incentive mechanism, improve the investment efficiency, promote the healthy development of Chinese enterprises.