Executive Power, Executive Compensation And Cash Dividend Policy

The separation of ownership and management has laid an important foundation for the development of the modern corporate system, which also caused Agency conflicts between owners and managers. Cash Dividend Policy and salary contract are also the ways to solve the agency conflicts, and there are many studies about them, but the study of the relationship between the two kinds of mechanism of corporate governance literature is still relatively small, and still did not form a consensus view. China’s Listed Companies are most coming from state-owned enterprises split listing, so State-owned enterprises play an important role in China’s economic development, and the particularity of state-owned enterprises has also increased the complexity of the agency problems between owners and managers.In recent years, the “ultra salary” event occurred repeatedly which has caused great question and widespread concern, so researching SOEs cash dividend policy and executive compensation is significant for the state-owned enterprise’s stable development and social harmony. However, the existing literature studying the relationship between executive compensation and cash dividend policies are just simple to learn from foreign models and methods, without taking into account our special institutional background, so this paper considers the different Executive Power will how to influence the relationship between them, and analyzes the possible reasons behind it. The research expands the idea of existing study, and opens future research ideas about the relationship between them.The essay proposed three hypotheses under the principal-agent theory、optimal contract theory and managerial power theory, next selecting the data of state- owned enterprises from 2009 to 2013,,this paper makes empirical test on this three hypotheses by Tobit regression. In order to improve the robustness of the study, linear regression and other proxy variables are used to prove the reliability of the study.This paper shows that: ①In the case of controlling other variables, executive salary and cash dividends positively correlated, suggesting that the higher pay levels will help attract and retain good managers, and improve managers’ effort and results of operations, good managers are able to maintain a high level of cash dividend policy;②in the case of controlling other variables, executive power and the cash dividend negatively correlated, suggesting that with the growth of executive power, the executive has the ability to influence company’s financial decisions, and tend to hold more cash flow and reduce the share of the operating results with shareholders; ③In the case of controlling other variables, the executive power will Increase the sensitivity of compensation and cash dividend.This indicates that as a rational person, the executives will take measure of paying more cash dividend to defend for their high salary, because high cash dividend could be a good signal for good operation to shareholders.Meanwhile, according to the research findings, this paper presents relevant policy recommendations, and scalability of this article is described.