Empirical Analysis About Executive Incentives’ Impact On The Company Performance In Listed Companies Of China

The separation of between ownership and management is the main characteristic of modern enterprise system. Shareholders have the ownership of the firm, while managers have management rights, and their interests are not consistent. A series of principal-agent problems appear because of the information asymmetry. As an effective measure to reduce agency costs and motivate managers to work hard, management incentives have become the focus of researchers’ studies. According to the principle-agent theory, in order to control the moral hazard and adverse selection of the management, it’s necessary to constrain and incent their work through means such as remuneration contracts. However, whether management incentive could help to achieve the desired results have become social concerns as well as the logic origin of our research. In addition, according to the theory of management power, company’s top management could exert effects on their governance systems(decision making, supervision, executive authorities, etc.) by exercising their rights. Therefore, power may outmatch the contract and it will have a negative effect on remuneration contracts, which is why only by verifying the effectiveness of management incentives and providing a good stimulus environment, could the incentive system of listed companies be perfected and the continuously efficient development be realized.There has always been the problem of the disconnection between the management incentive and company’s operation all in China. In early days, the incentive level is generally low and couldn’t generate the due incentive effect. Later then, surplus incentive phenomenons such as sky-high compensation of executives appeared, which could indicate management incentive problem has not been solved well. According to the documents of the state ministries, we can see that management incentive especially that in large state-controlled enterprises has already caused great concern from the society. Due to that the existing studies mostly discuss the influence on enterprise operating performance from two aspects: explicit monetary compensation and management equity, which on-the-job consumption has long been ignored. The phenomenon that the executives of China’s listed company use their authority of office to seek excessive perquisite consumption caused wide public concern in our society and the opportunistic behavior that managers abuse their privileges for personal gains has been denounced constantly, for example, the government has promulgated a series of regulations to restrict the perquisite consumption of executives in state-owned enterprises. However, academia has not yet formed a consensus in the causes and economic properties of perquisite consumption: some scholars found that perquisite consumption is a form of agency costs, others have pointed out the incentive side of perquisite consumption under specific conditions. Therefore, a systematic and further research on the affecting factors of perquisite consumption in China’s listed companies and the economic consequences the perquisite consumption has on enterprise performance will have an important theoretical and practical significance in improving the mechanism of governance, reducing moral hazard of executives and improving the performance of China’s listed companies.This paper selects China’s A-share listed in Shanghai and Shenzhen stock exchanges between 2009 and 2013 as the study sample. This paper puts forward the following assumptions:(1) The management incentive system of listed company has positive influences in company performance, and the influence of the system in private listed companies is bigger than that in the state-owned listed companies.(2) The managers’ stock-holding ratio has positive influences in company performance, and the influence of the system in private listed company is bigger than that in the state-owned listed companies.(3) The managers’ non-pecuniary compensation of listed companies has a negative correlation with company performance, and the influence of the system in private listed company is bigger than that in the state-owned listed companies. Using manager’s monetary remuneration, percentage of stock holdings and non-pecuniary compensation as explanatory variables of the empirical research, and using the difference between operating profit and investment income divided by the ending of net assets as a measure of company performance, supplemented by company size, financial leverage, ownership concentration, two jobs concurrently, corporate nature as the control variables, this paper generates the descriptively statistical analysis and multiple regression analysis. It turns out that the management incentive system of listed companies and the managers’ stock-holding ratio have positive influences in company performance, while the managers’ non-pecuniary compensation of listed companies reveals a negative correlation with company performance. Taking all those effects into consideration, the influence is bigger in private listed company than that in the state-owned listed company. The results above reliably support the three hypotheses of this article. In order to make these research conclusions more persuasive, we carry out the following robustness test where the financial index of the rate of return on net assets(net income divided by net assets at the end of the year) is replaced by the adjusted net profit rate of asset whose molecule is calculated by deducting the molecule of the former index of “outside-business income and expenditure” and “income tax”, and the results of the analysis are consistent with those of the main test. Finally, this paper puts forward some policy suggestions based on the research conclusions, such as to steadily promote the reform process of the state-owned enterprise property right, to establish and improve the selection and evaluation mechanism of managers’ market and so on. Finally, this paper makes an explanation on the research deficiency.