Management Incentive, Executive Power And Firm Performance

According to Principal-agent Theory, in order to control the moral hazard and adverse selection of the management, it is necessary to constrain and incentive the management’s work through compensation contracts. Whether management incentives can improve enterprise performance has been praised by the social attention, it is also the starting point of the researches on the management incentives. According to the Theory of management power, corporate executives can use their power to affect the company’s management system (such as decision-making supervision and enforcement, etc.), it will cause negative effects to the optimal compensation contract. Therefore, to confirm the effect of management incentives and create incentive environment to achieve optimal effect will help to improve the listed company’s incentive mechanism and contribute to the high continuous development of the enterprise.Our country has always been divorces between management incentive and enterprise operating performance, in the early days, the management incentive lever is generally low, which does not meet its incentive effect. To the later, sky-high compensation phenomenon came into being in some enterprises, it also suggests that management incentive problem haven’t been solved for q long time. In recent years, relevant departments are continually issued a series of system to constraint management incentive problem. However, in the regulation of the system, in April2011, the media reported that Sinopec’s top management still buy worth millions of high-grade wine for company personnel. Thus, when the government concerned in the specification of dominant monetary income in state-owned enterprises, recessive post consumption also began to attract public attention. So to speak, management incentives is related to all aspects of enterprise development, to find the optimal way of management incentives, to create to achieve optimal effect of incentive environment will contribute to the sustained and efficient development of listed company.Due to that the existing studies mostly discuss the influence on enterprise operating performance from the two aspects:dominant monetary compensation and management equity, on-the-job consumption has long been ignored.thus,one of the purpose of this study is to introduce on-the-job consumption as a way of management incentive, and comprehensively study the correlation between management incentives and corporate performance from three dimensions: dominant monetary compensation, management equity and management’s on-the-job consumption, to provides some policy recommendations to perfect enterprise salary system and regulate executive post consumer behavior.Second,because the management power can affect the implementation and enforcement of the signed compensation contracts, the second purpose of this study is to combine with the management power theory to analysis the differences of management incentive effects under different executive power, in order to investigate the best corporate governance environment and provide empirical data to improve company’s balances mechanism in our country.Based on the method of normative analysis and empirical test, This paper analyzes the influence of the management’s on-the-job consumption, monetary compensation and management equity on enterprise operating performance. And from power management theory, this paper distinguishes the effect of management incentives between different executive powers.This article’s first chapter is an introduction. The main purpose of this chapter is to introduce the background and the overall structure of the paper writing, In this paper, the second chapter contains the basic theory and the literature review. This part is a review on the related basic theory of management incentive, to lay the theoretical foundation for the full text.The third chapter and the fourth chapter are the main part of the article. The third chapter is the research design, this part mainly includes three aspects: theoretical analysis and hypothesis put forward, the sample and data source, variable selection and model design.This part mainly provide a basis for the empirical analysis part of chapter4.Chapter4is descriptive statistics and empirical analysis part. First of all, it describe the overall condition of management incentives, and then describe the difference under different ultimate control and executive power. Then this part analysis the correlation and regression results. The hypothesis which is put forward in the third chapter has been proved in the empirical regression results. For the stability of the test results, this article also has carried on the robustness test.The fifth chapter is conclusion and enlightenment. Through the analysis, this paper reaches the following four conclusions:1.In the state-owned enterprise, the management on-the-job consumption lever is less than non-state-controlled enterprise, and negatively related to the enterprise business performance significantly. But in non-state-controlled listed companies, the management on-the-job consumption lever is higher than that of state-owned holding companies, but on-the-job consumption is positively related to the corporate performance2. Monetary compensation as the most direct way of incentive is positively related to the enterprise business performance significantly at1%lever.3. Management ownership and enterprise business performance has significant positive correlation.4. In our country, the executive power does not improve enterprise business performance, on the contrary, which has weakened the management incentive effect. On this basis, this paper put forward the following policy recommendations:1.Constraint the management on-the-job consumption behavior in the state-owned enterprise.2. Improve the managers’ competition in the market.3. Perfect the enterprise equity incentive plan.4. Strengthen the balances and oversight of executive power.Contribution of this paper is mainly manifested in the following three aspects:1. Due to the on-the-job consumption data has not disclosed separately, so existing research introducing incentives of on-the-job consumption is less. This article from three aspects:monetary compensation, management equity and on-the-job consumption, comprehensively studied the influence on enterprise performance.2. According to China’s national conditions, this paper put forward new assumptions under different property rights and through the empirical analysis this paper verifies the hypothesis.3.Distinguish the impact on enterprise performance under different executive power. Extensive the perspective of management incentive and provide reference to improve management incentive mechanism.