Research On The Effectiveness Of The Internal Controls Impacting On The Sensitivity Between The Executives’ Pay And Corporate Performance

The purpose of the internal control system implementation is to make sure the enterprise management more legal, improve the operational efficiency and effectiveness, and promote the development of enterprises more sustainable. To reach those purposes, we should combine the interests between the managers and the share holds, constraint the managers’adverse selection and avoid their moral hazards. All the above requests are just the encountered challenges of the incentive pay system. Due to China’s domestic internal control system is not very sound, we need serious data to inspect if the reasonable standard of internal control system is able to raise the Executives’ Pay and Corporate Performance sensitivity. If we can prove that, then the managers will have more motivation and confidence to enhance the quality of internal control and also provide a new idea for the development of incentive pay system. Based on those views, this paper do the research on the impaction of the internal control quality exerting to the Executives’ Pay and Corporate Performance sensitivity by the normative and empirical way.This paper is based on the agency theory, corporate governance theory and other related theories, using multiple regression and packet regression methods, deeply analyzed the relevance among the the quality of internal control, the Executives’ Pay and Corporate Performance sensitivity. we have selected799listed companies of2011in shanghai stock, examined the influence of the effectiveness of internal control quality exerting to the Executives’ Pay and Corporate Performance sensitivity, eventually reached the following conclusions:(1) the performance of the company promotes Executives’ Pay growth, but in state-owned listed companies, this positive correlation is not very obvious.(2) More effective internal controls, the stronger performance sensitivity of Executives’ Pay.(3)Compared to non-state-owned listed companies, in state-owned listed companies, the effectiveness of internal control impact on the sensitivity of Executives’ Pay&Corporate Performance more strongly. The paper is organized as follows:The first part is introduction, an overview of the research background, the purpose of research, as well as research significance; The second part is theoretical analysis and literature review, elaborate on the theoretical basis of the Executives’ Pay&Corporate Performance sensitivity, and sort out the domestic and international research on the the effectiveness of internal control; the third part is research design, put forward the research hypotheses on the basis of theoretical analysis, and select the listed companies, than, defined variables; The fourth part is empirical test results and analysis; the fifth part of the study is conclusions and outlook,summarize the research results of theoretical analysis and empirical tests, reached the following conclusions.The innovation of this paper lies in:(1) While study the Executives’ Pay&Corporate Performance sensitivity, breaking the traditional research perspective, not only taking the corporate governance factors into account, but also including the internal controls. Thus, the results of the study can guide the construction and improvement of the incentive pay system.(2) Compared with the traditional measurement of internal control, this paper take Dibo’s internal control index (ICI) to measure the effectiveness of internal control, and select the financial statements of listed companies of2011, provide the latest empirical evidence for incentive payments and internal control evaluation system.(3) Analyzed the effectiveness of internal control impacting on the Executives’ Pay&Corporate Performance sensitivity under different nature of property right. However, due to the constraints and objective conditions, it still has some shortcomings:Due to the difficulties of collecting the Dibo Internal Control Index of Listed Companies, this paper only use one year data to do research. All the above problems limit the representation and interpretation. Besides, this paper only considered the monetary remuneration of executive compensation; we can combine the monetary and non-monetary remuneration to do more comprehensive analysis in the future research.