Empirical Study On The Relationship Between Company Performance And Executive Compensation Based On The Domestic Listed Financial Companies

Initially, this thesis reviews the fundamental theories involved, including the principal-agency theory, the theory of internal control, the human capital theory, the expectancy theory and the contingency theory, and therefore lays a theoretical foundation for the following research. In addition, this thesis summarizes the findings of domestic and foreign scholars’research regarding the correlation between the executive pay and company performance, and discovers that in spite of years of intensive research in regards to the executive pay, domestic and foreign researchers failed to establish a complete and cohesive system of theory. Prior the1980s, only a minority of the literature studied such topic. Subsequently, there were many new developments in relation to this area achieved every year. However, due to the differences in time frame as well as the selection of industry, the empirical analysis of domestic and foreign scholars in regards to the relation of the executive pay and company performance indicates controversial results. Some of them believe there is a significant correlation between these two factors, while others think they are not correlated at all.Based on the literature review and the summary of theories, the author outlines the current condition of executive pay of the public companies in Chinese financial industry, including the characters of Chinese financial industry, the components and standards of executive pay in such industry, and a further analysis on the main points of the regulation of limiting the compensation of senior executives, which was issued by the Chinese government in2009.In the section of empirical research, this thesis conducts the regression test on the related data of41Chinese public financial companies from2007to2013using the cross section regression model, explores the correlation between the executive pay and the performance of Chinese public financial corporations, as well as analyses the influence of the regulation of limiting the executive pay in the correlation of the compensation of senior executives and the performance of the company by adding a dummy variable. This research shows an insignificant positive correlation between the executive pay in the financial industry and the performance of the company, which indicates that companies have not fully considered their performance in developing the incentive mechanism regarding the compensation of senior executives. Moreover, although the regulation of limiting the executive pay decreases the excessive compensation in the financial industry, it has limited impact on the correlation between the executive pay and the company performance, and therefore illustrates that, to some extent, this regulation issued by the government failed to achieve the expected effect.