Listed Companies’ Executive Incentives’ Effects On Enterprise Operation Risk

Entrusted agency has long been an important subject in listed companies’ management, incentives to company managers have been listed as an important problem faced by the shareholders and company owners. Entrepreneurs and academics have designed a variety of incentive measures. Under the modern enterprise management system, the separation of two rights, entrusted agency relationship formed between the company’s executives and the owners.In the process of entrusted agency, information asymmetry exists between the owners and operators and the target utility function they use is also different,all these factors may lead to senior managers’high-risk behavior, which will make the company suffering from the management crisis and the loss of company value. Therefore, it is urgent to solve this problem.Executive incentives mainly include two aspects:executive compensation and executive equity incentive.From the study on how to improve the risk management of listed companies at home and abroad in the past, we can see that certain correlations exist between executive compensation incentive and equity incentive and the company’s operating risk in listed company. At the high level of motivation, company executives are more likely to take some more radical measures and management decisions. In order to get promotion and higher-pay, the company’s executives improve their performance through a variety of ways. However, this kind of behavior is likely to bring higher level of risk to the company. Furthermore, different level of salary incentives in management members could also lead to the increase of the feeling of injustice and bring harm to the cooperation between team members, all these will also make the company suffering higher management risk.On the basis of the entrust-agent theory and the incentive theory, and after reviewing related documents, this paper selected these two aspects,the executive compensation incentive and executive equity incentive, to study the executive incentives’ effects on the listed companies’management risk. This article chooses a total of 531 samples from177 sample companies in the GEM of listed companies in China from 2010 to 2012. The descriptive statistics analysis, correlation analysis and multiple regression analysis have been used to dig up the related factors between the sample companies and their associated risk factors. The empirical study on the executive compensation incentive of listed companies and listed companies executives equity incentive effect on the operating risk of listed companies. The research results show that the listed company executive compensation incentive and equity incentive can effectively reduce the management risk of the company. Finally, combining with the result of empirical study, this paper puts forward some suggestions on the executive incentive mechanism of listed companies and some universal relevant and effective policy advice to listed companies.