Research On Executive Incentive And Capital Structure Adjustment

The relationship between executive incentive and capital structure is complicated and close. In the modern corporation governance practices, appropriate incentives given to executives is one of most important way to alleviate principal-agent problems between shareholders and senior executives, and then have an important influence on the financial decision-making behavior. In order to enhance the value of the company, executives have an incentive to make the actual capital structure adjustment to optimal capital structure, and achieve the continuous optimization of capital structure. Previous literature about the research on executive incentive or capital structure adjustment is abundant, but not delve into the relationship of this two aspects in the same category. With the rapid development of corporate governance and corporate finance, influence of incentive mechanism on the capital structure adjustment is more significant. This paper will combine executive incentive and capital structure adjustment, and focus on the effect of compensation incentive and equity incentive in the process of capital structure adjustment of real estate listed companies to obtain the corresponding empirical evidence.This paper first reviews the relevant research literature, and then sorts out the development context of incentive theory and capital structure theory. Secondly, analysis of the development process of real estate industry in China and current characteristics of executive incentive of this industry, and depth analysis of the capital structure formation mechanism and current characteristics. Thirdly, constructing a partial adjustment model which contains executive incentive factors, selecting the panel data from2007to2013of real estate listed companies in China’s A-shares market. While using the first order difference GMM estimation method, mixed OLS regression method and fixed effects regression method to examine the influence that compensation incentive and equity incentive on capital structure adjustment speed and degree of deviation. Fourthly, drawing conclusions and propose appropriate policy recommendations.This paper draws the following conclusions. Firstly, in real estate listed companies, compensation incentive can significantly accelerate the speed of adjustment and reduce the degree of deviation. Equity incentive can accelerate the speed of adjustment to some extent, but cannot reduce the degree of deviation from optimal capital structure. Secondly, enhancing the degree of compensation incentive can improve the level of companies’debt significantly, while enhancing the degree of equity incentive can improve the level of companies’debt limitedly. Thirdly, the company size, profitability, asset tangibility and industry average capital structure can have a significant influence on capital structure adjustment process.Finally, for the conclusions of research, this paper puts forward the corresponding measures and suggestions from seven aspects. They are establish compensation incentive system which associate with companies’performance, expand the range of equity incentive, improve the real estate companies’ financing channels, strengthen and improve the corporate governance and government supervision system, expand the range of information disclosure in capital market, establish and perfect the system of laws and regulations.