State-owned Enterprises In China: An Empirical Study Of Capital Structure Impact On Executive Pay

Since the reform and opening up, China’s economic development is be obvious to all.Enterprises in China have gradually established a modern enterprise system, to meet moreopportunities and challenges. The separation of ownership and management is the one bigcharacteristic of modern enterprise system, and it leads to the agency cost problem, alsomake the executive compensation become topic. As the financial crisis in2008, the globaleconomic gloom, but our country state-owned enterprise has back-to-back bombshells“sky-high compensation”, this will be another executive pay rushed in the teeth of thestorm.Public back to our country state-owned enterprise executive compensation andcorporate performance with chi, the ministry of human resources and social security and soon six departments jointly issued the “Guiding opinions on further regulating the person incharge of the salary management of central enterprises” on September16,2009.(i.e.Chinese version “salary limit order”), aims to standardize the executive compensation ofChinese state-owned enterprises.In this context, this article based on the basic situation of executive pay instate-owned enterprises in China, from2010to2012in Shanghai and Shenzhen two citya-share listed state-owned companies as sample data, respectively studies the relationshipbetween the capital structure of our state-owned enterprises and top management cashcompensation, equity based compensation. Use the data from2007to2009and from2010to2012of empirical comparison tested whether the “salary limit order” play for thestandard system of our country state-owned enterprise as well as the roll of “salary limitorder” promulgated by the impact on the capital structure of our state-owned enterprisesand executive compensation relationship. Through the empirical analysis conclusions areas follows:⑴The capital structure and top management cash compensation of the state-ownedenterprise of our country has positive correlation, the state-owned enterprise debt level ishigh executive compensation is also higher. This is because China’s state-ownedenterprises and the state-owned commercial bank both belong to the government, the soft constraints between them make the liabilities of rigid is not very good constraint ofstate-owned enterprise executives selfish behavior. In addition, the special superiority ofstate-owned enterprises also makes the executives can easily get good businessperformance, which can set high pay for himself.⑵The “salary limit order” after the enactment of executive pay in state-ownedenterprises in China do not decline obviously,“salary limit order” does not play anormative role of state-owned enterprises executive compensation. The “salary limit order”issued by the original intention and content of the salary is reasonable, the reason that it notplay the role of standard the state-owned enterprises executive compensation is there is nosupervision department and the enforcement is too small.⑶The capital structure and executive equity compensation of the state-ownedenterprise of our country has negative correlation, namely, the lower the debt levels and thehigher executive equity compensation. This is because the capital market in China is notperfect and the equity incentive system is established in the preliminary stage, so manyexecutives will implement self motivation to use their powers, which also leads to themaximization of executives in to their excessive equity incentive and corporate profits willnot pursue a lower than optimal capital structure and debt levels.