The Research Of The Relationship Between Corporate M&A And Executive Compensation

Since1980s, the executive pay of the top500American enterprise values has increased dramatically. Although the part reasons due to executive compensation incentive in equity and options, the growth of average salary and allowance also reach three times (Murphy and Zabojnik,2007). The executive compensation of some domestic private enterprises in our country also constantly called "Sky-high compensation". What is the compensation system behind the phenomenon? What factors influence the Executive compensation?The optimal contract theory which is derived from the principal-agent theory explains the top management compensation contracts:the board of directors which is elected by shareholders develops the top management compensation contracts, and decides the management compensation based on the maximum enterprises operating performances. Many scholars’researches confirm that compensation has the positive relationships with the performance. However, some others hold opposite opinions. The management power makes the management largely influences and decides his own compensation. The management has the motivation and abilities to impact the compensation and the relationship between the compensation and the performances using power rent-seeking. Besides the operating performance, the executive compensation is also related to the operation difficulty which is directly influenced by the enterprise scales. However, to expand the assets scale depending on endogenous methods not only has large difficulties but remains a quite long period. Under the background of executive tenure in our country, it is unrealistic to increase compensation by endogenous methods. Therefore denotative expansion, mergers and acquisitions, has become the most direct and rapid method to improve the compensation.Under the irreversible trend of economic globalization, the corporate mergers and acquisitions has become the significant means to expand market share, improve the production and optimize social resources distribution. Since the1880s, Western developed capital market has experienced six massive waves of mergers and acquisitions. The trend also becomes increasingly fierce in our country. Faced with this, we would like to ask why the executives carry out the mergers and acquisitions. What are the motivations on earth?In the early stages, the researches on M&A focus on the economic efficiency, such as the Economies of scale and scope economy, the advantage of monopoly power, financial and operating synergies, and financial advantages, earning profit from the potential stocks and strategy on coping with the change of business environment. From this perspective, the managers implement mergers and acquisitions in order to maximize shareholders wealth. With the Separation of Two Rights from Berle putting forward, the separation between the ownership and control results in potential conflicts of interest between the management and the shareholderThe agent as the so-called "economic man" has "opportunism tendency" in the decisions of the company. With the characteristics of self-interest, they can take advantage of the authorization of the principal and resources advantages they own to implement improper consumption or slack off work, and even carry out M&A to seek more interest sacrificing the principal’s interests, which generate agency costs. Moreover, under the institutional environment in our country, there are phenomenon of executive compensation control, which could result in the distortion of the proprietor. In addition, the executive compensation in our country has a single and unreasonable structure. Comparing with oversea enterprise, single currency salary income is not only on the low level but lack of incentives. Meanwhile the management can improve business environment, decide the corporate M&A and securities issues through working right, which obtain more company-paid consumption. In the face of the acquiring firm shareholder value increasingly less and m&a events occurred frequently and amounts increasingly more, besides the executive compensation in the acquiring firm rising sharply, while M&A performance being flat or even declining sharply, the researchers hold another opinion about the M&A motivation:the executives launch M&A in order to improve the compensation. If we can reduce agency problem by increasing the proportion of long-term compensation incentive is one of the problems that the paper would like to solve.Firstly, the paper reviews the literature about the corporate performance and the executive compensation, the M&A motivation and performance, the M&A performance and the executive compensation and the M&A performance and the executive equity incentive. In addition, the paper presents the research direction and the research meaning. Moreover, the paper makes the theoretical analysis and put forward the assumptions. On the basis of that, the paper builds the model and selects the samples. Furthermore, in empirical research part, the paper conducts the descriptive statistics, nonparametric test, independent sample T test, related sample T test and regression analysis, robustness test. With the multiple regression model, the paper considers executive pay as explained variable, treats M&A events, M&A frequency, M&A scale and M&A performance as the explaining variable. Through regression analysis adding control variables, the paper inspects whether M&A can increase the executive compensation; whether the executive has the motivation of obtaining more income by implementing M&A; whether increasing the proportion of management shareholding can relief the M&A whose motivations to increase the management pay. Finally, Robustness testing is completed by using substitution variables.This article selects acquisition events among2007to2010listed companies as the sample. The empirical results show that the listed company acquisition behaviors have become one of the main means to obtain personal benefits; the listed companies as the acquiring firms exist agent problems; the acquisition doesn’t improve the company performance; the increase in the management pay relies on the expand of the company scale rather than the acquisition performance. Although the management shareholding has little rule on relieving agent problem, with the increase of management shareholding level, it will have positive influence on declining agent cost and building proper executive compensation incentive system.