Executive Compensation And Investment Behavior

As central enterprises are the dominant component of China’s market economy, the executive compensation has long been a major concern."Measures for the assessment of management performance of central enterprise", issued by SASAC in2010, added EVA into the index of performance evaluation. And as a result, the executive compensation of central enterprises will be influenced by EVA. Based on the background of the incentive system and EVA assessment mechanism in China’s central enterprise, this paper analyses the sample of153central enterprises from2008to2012, and examines the correlation between executive compensation and investment behavior, then further consideration, the relationship between EVA performance appraisal and investment behavior.According to the descriptive statistics as well as Correlation and regression analysis, this paper analyzes the influence of executive compensation on excessive investment and insufficient investment, establishes of prediction model for capital investment, to get the result of excessive investment and insufficient investment. About the study on the relationship between the executive compensation and investment behavior, we consider the monetary compensation and equity compensation. And then we examine the effects of EVA performance evaluation on investment behavior. Finally, we try to point out some suggestions about the deficiency of this paper.As it can be seen from the results, the executive compensation is lower, excessive investment is more serious. Meanwhile, the executive’s monetary remuneration and investment is also a negative correlation. Consider the diversity of the remuneration structure, and there is no obvious evidence that equity incentives have an impact on the investment behavior. After the implementation of the EVA performance assessment, the extent of the excessive investment and the degree of the insufficient investment are more obvious changes, the results also show that EVA inhibits the excessive investment behavior.The research of this paper has some practical guidance for the reform of the central enterprises in China, providing a reference for how to improve the incentive effect of executive compensation, to some extent, it also supports the implementation of EVA performance assessment in the central enterprises of China.