Study On The Effect Of Executive Compensation On Non-efficient Investment In Listed Companies

The push of national economic prosperity makes the quantity of listed companies grow. At the same time, complicated reward form appears one after another. Monetary compensation, executive shareholding, equity incentive and other forms of reward fully explains that the executive pay is not only a reward form, but also an incentive method. All the companies want to stimulate managers by salary incentive so that they can get better service and higher performance. But the gateway management decision-making behavior to the high performance is often ignored in the study. In fact, companies motivate managers by hierarchical compensation form first, and then improve corporate performance. Usually the behavior of motivating managers is investment decision-making. However, because of the separation of operation right and ownership, the principal-agent problems appear. And this problems lead to a different goal between shareholders and managers. Coupled with the asymmetric information, investment decisions of managers will worsen, and resulting in non-efficient investment phenomenon such as over investment and under investment. In order to improve the company’s investment efficiency, we should take good advantage of the effect on executive compensation incentive. The paper focuses on the effect of executive compensation on non-efficient investment.The paper has six parts. First, review the research background, purpose and significance of executive compensation and non-efficient investment. Refering to domestic and foreign literature review, I got reseach methods and main content. Second, define the basic concept of executive compensation and non-efficient investment, and elaborate the related theories. Third, make use of descriptive statistics to show the current characteristics and status of executive compensation and non-efficient investment. With sufficient data, paper express the trend of overall rise in executive compensation. But because of the difference in regional and industry, there is also a change among it. And due to causes such as agency problems and information asymmetric, non-efficient investment shows the form of over investment and under investment. Fourth, base on relevant background and the present situation of executive compensation in our country listed companies and non-efficient investment, paper puts forward hypothesis. Then use a few financial indicators which have stronger correlation like free cash flow and Tobin Q value, asset-liability ratio, total assets and the company age to build investment model. At the same time, select1390listed companies from2010to2012, totally4170samples, as initial data. And get samples data of non-efficient through investment model regression, namely1410over investment and2750under investment research data. On this basis, use executive compensation, cash flow, financial risk as variables. Then set up the non-efficient investment model and do return again. Finally get the result of empirical analysis. The empirical result shows that:Among listed companies in China, executive compensation has a negative impact on over investment, and executive compensation has a positive impact on under investment. This result suggests that improving manager pay will restrain the phenomenon of over investment. But it can lead to under investment of companies. And vice versa. Therefore, on the basis of qualitative and quantitative analysis, put forward the fifth part that use executive compensation restrain non-efficient investment from five aspects which is the pay structure, management mechanism, the compensation system the rights and interests compensation and information disclosure of compensation system, and finally summed up the sixth part of conclusion.