The Study On The Relationship Of Collusion, Pay Gap And Corporate Performance

The separation of ownership and management of the modern enterprises has caused the principal-agent problem between shareholders and managers. Executive compensation incentive of listed companies has always been considered an important way to solve the agency problem. Incentive compensation has necessarily related to the pay gap between executives which involves the issue of fairness and efficiency. If the pay gap is too small which mean that the executives can not get the relative rewards after hard work, it may affect the executives’ enthusiasm, and thus affect the corporate performance. If the pay gap is too big, it may damage the team work and cause infighting among executives, and thus damage the corporate performance. How to determine reasonable executive salary structure, which can make a consistency between shareholders and executives so as to maximize the corporate performance, has been a difficult issue. However, many studies have found that the largest shareholder can transfer the benefits for itself by collusion with executives, harming the interests of the small shareholders and thus affecting the corporate performance. Meanwhile, the executives can obtain additional revenue by collusion. Does the pay gap impact the corporate performance? Whether collusion between the largest shareholder and executives will expand the pay gap among executives and affect the relationship between pay gap and corporate performance or not? What kind of impact?In this paper, it studies the relationship collusion、pay gap and corporation performance based on the Main board listed companies. Firstly, the paper reviews the related theories, such as the principal-agent theory, the optimal contract theory and so on, which lays the theoretical foundation for this article. At the same time, the text concludes the research findings both at home and abroad, and point out their limitations. And then, we make a research based on the GEM listed companies from 2010 to 2013, which includes: the relationship between pay gap and corporate performance and the relationship between collusion and salary incentive. The study finds that: 1) the pay gap has positive effect on corporate performance, namely the bigger the pay gap is, the better the performance is; 2) collusion between the largest shareholder and executives has negative effect on the salary incentives and distorts the pay incentive to a certain extent. After compares the pay gap, perk and corporate performance sorted by the collusion, it finds that the pay gap and corporate performance are both not significantly greater. However, the perk is significantly higher than the other group. Finally, the paper gives some suggestions according to the findings, and point out the limitations and the future study directions of this paper.