Research Of Ownership Structure And Executive Compensation On Investment Of China Listed Companies

Based on the theories of agency and asymmetric information, this paper analysesthe impact of ownership structure and executive compensation on China listedcompanies’ capital investment decision. Subsequently, using the data from year2007to2011, we investigate governance effect ownership structure and executivecompensation on company’s over-investment and under-investment.We find that China listed companies exist both over-investment andunder-investment. Overall, there’s not a significant relationship between the largestshareholder’s holding ratio and over-investment. However, we find that theover-investment increases as the largest shareholder’s holding ratio increases inprivate owned companies. Besides, there’s a significant negative relationship betweenthe largest shareholder’s holding ratio and under-investment except in private-ownedcompanies.As an important solution of agency problem, executive compensation playsdifferently in listed companies overinvestment and underinvestment. Firstly, there’s asignificant positive relationship between executive compensation and over-investmentin central state owned and local state owned companies. High executive compensationexacerbates these companies’ over-investment. Secondly, we find that theunder-investment decreases as the executive compensation increases in central stateowned companies. However, in local state owned and private owned companies,executive compensation does not play a significant role in their under-investmentbehavior.This paper may make sense in our understanding of executive compensation’s roleof listed companies’ investment decision. Besides, it also offers an different scope inutilizing ownership structure and making efficient incentive contracts.