Top Management Monetary Compensations, Perks And The Corporate Value

There are two main top management incentives-monetary compensations and perks. It is known that top management incentives can reduce agency costs between shareholders and top management to increase the corporate value. But in practice and in theory, it is controversial whether monetary compensations and perks are positively associated with the corporate value. Accordingly, this thesis examines the relationship between these two main incentives and the corporate value, and whether the substitute of monetary compensations for perks (namely the proportion of monetary compensations in the whole incentive) can affect the corporate value.There are eight parts in this thesis. The first part describes the background, the purpose and the structure of this thesis. The second part summarizes past paper from the perspectives of the component of top-management incentives, the relationship between monetary compensations and the corporate value, the definition and the cause of perks, the relationship between perks and the corporate value, and the substitute of monetary compensations for perks. The third part analyzes the principal agent theory and relevant motivation theories, and then develops three hypotheses. The next part states sample selection and variable definition. The fifth part lists descriptive statistics and correlations, and results for regression. Then the thesis carries out further analysis about the relationship between the substitute of monetary compensations for perks and the corporate value in central-government-owned firms. The seventh part conducts the sensitivity analysis to ensure the previous conclusions are correct. The final part summarizes the conclusion, gives some advices, and states the innovation and shortcoming of this thesis.This thesis defines top management as members of the board of directors, CEOs, Vice CEOs, CFOs and other top executives stated in constitution of firms. Monetary compensations conclude salaries and bonuses, and are scaled by the opening balance of total assets. Perks are the aggregate of office administrative expenses, business travel expenses, business entertainment expenses, communication expenses, training abroad expense, board meeting expenses, company car and chauffer services, and conference expenses disclosed in the note of "other cash flows related to operating activities" in annual reports, and are scaled by the opening balance of total assets. The substitute of monetary compensations for perks is measured as the difference between the natural logarithm of monetary compensations and the natural logarithm of perks. Tobin’Q is used to represent the corporate value.This thesis studies data from companies listed in Shanghai and Shenzhen Stock Exchange for the period from2009to2011. Perks and ownership nature of ultimate controller data are hand-collected, and other data are from CSMAR database. This thesis eliminates companies labeled as ST, financial institutions and insurance companies, and winsorizes the upper and lower1%of data.This thesis has several findings as following:(1)In the whole sample, central-government owned enterprises, local-government owned enterprises and non-state owned enterprises, top management monetary compensations are positively and significantly associated with the corporate value.(2)In the whole sample, central-government owned enterprises and non-state owned enterprises, perks and the corporate value are positively and significantly associated.While in local-government owned enterprises the positive relation is not dramatic. The reason may be that the agency problem is more severe in state owned enterprises. But central-government owned enterprises suffer more supervise, or other incentives take effect. Meanwhile normally central-government owned enterprises have large scale, and they need more perks to keep necessary management activities. Moreover some central-government owned enterprises that are criticized in excessive perks do not disclose perks, so the conclusion just show characterizes of most central-government owned enterprises not some extreme cases. Therefore the insignificant relationship only exists in local-government owned enterprises. (3)In the whole sample, local-government owned enterprises and non-state owned enterprises, the substitute of monetary compensations for perks (the substitute) and the corporate value are positively and significantly associated.While in central-government-owned enterprises the positive relation is less dramatic. After further analysis of central-government owned enterprises, the thesis finds that the relationship between the substitute and the corporate value follows converse U type characteristic. And the number of sample that the substitute goes beyond the point of inflection is33, where the corporate value decreases with the substitute increasing. This means that some perks are necessary to maintain the run of companies and cannot be eliminated. But at the moment, nearly all companies can increase their value by replacing perks by monetary compensations.There are two main innovations of the thesis as following:(l)This thesis examines the relationship between the substitute of monetary compensations for perks and the corporate value. There is only one paper that discusses how marketization affects the substitute. This finding provides more evidence on the substitute and theoretical support about how to change the proportion of top-management incentives to promote the corporate value.(2)This thesis divides the sample into three groups:central-government owned enterprises, local-government owned enterprises and non-state owned enterprises. Normally paper that discusses about the relationship between top-management incentives and the corporate value only run regressions separately for state owned enterprises and non-state owned enterprises.