The Empirical Study Of Correlation Between Top-managers’ Pay Performance Sensitivity And Investment

The separation of ownership and management of modern enterprise management mode often leads to the problem of agency. Managers take advantage of inside information may do damage to the shareholders’ equity management decisions because of their own interests, which lead to the company’s activities can not increase the enterprise value and increase the wealth of shareholders. Agency theory suggests that interests between shareholders and managers are not consistent, which is one of the causes of non-efficiency decisions. The modern management theory suggests that a reasonable compensation contract can effectively restrain managers’ behavior, reduce the agency cost. Along with the development of listed companies’ financial information disclosure system, the publication of pay data is more transparent, the study on compensation becomes an important area of research. Many studies have shown that executive compensation and company performance is in positive correlation. So there is a certain relationship among executive compensation, company performance and investment activities. This paper combines related theories and empirical research, and study the relationship between pay performance sensitivity and investment behavior.First of all, this paper describes the problems arising from the modern enterprise management, and analyzes the meaning of the research. Then this paper reviews the related research of scholars both at home and abroad. Their research suggested that managers’ compensation would be affected by the company’s performance. And many factors affected the decision of the shareholders, just like the compensation of managers, the attitude to risk, the development of the company and so on. So we named the correlation of managers’compensation and firm performance as top-managers’ pay performance sensitivity. And study the relationship between top-managers’ pay performance sensitivity and investment.Combined with the principal agent theory and the theory of salary incentive, we put forward the hypothesis of this article. We assume top-managers’ pay performance sensitivity and investment were positively correlated. This paper chose the a-share listed companies in China from2010to2012financial tabulated data to verify this hypothesis. The results show that they are in a certain relationship. We also found that the company’s growth have an impact on the relationship between top-managers’pay performance sensitivity and investment. If the development of the company ability is strong, the top-managers’ pay performance sensitivity is positively related with investment relationship. If the development of the company ability is weak, the top-managers’ pay performance sensitivity have no correlation with investment.At last, we provide some suggestions to the internal governance mechanism and compensation incentive system. For example, the company should formulate reasonable, efficient and fair pay system, and combine managers’ compensation and the company’s long-term performance, and set reasonable performance standards.