Research On The Influence Of Executive Incentive To Inefficient Investment

The economy in our country has developed rapidly in recent years, but it also exposed some problems, especially the low efficiency in investment. It is estimated that the increase of 1 dollar in our GDP needs the investment of 5 dollars. The cost of capital investment is 40% higher than that of South Korea and Japan. Our investment rate is close to 50%, but the rate of return in investment is falling, Our economy is in a critical period of transition, the mode that only by increasing the rate of investment to promote the economy is difficult to continue, We should pay more attention to the efficiency of investment.According to the principal-agent theory and information asymmetry theory, there are differences between the managers and the owners. When making investment decisions, the operator often consider more about his own interest, it will lead to inefficient investment. Executive incentive is one of the methods to solve the problem of principal-agent. According to the senior management’s reward approach, they can own the rights to claim for the rest of the company’s profits, then the interests between the managers and the owners will be together, then the shareholder’s value can maximize.The explained variable of this paper is the investment efficiency, According to the relevant theory of corporate finance, the enterprises should choose to invest in the positive NPV projects and avoid investing in the negative NPV projects, otherwise it will cause inefficient investment, the former is called overinvestment and the latter is called underinvestment. The explaining variable of this paper is the executive incentive, it can be divided into explicit and implicit incentive, the explicit incentive includes compensation incentive and equity incentive, the implicit incentive includes the level of perks and promotion incentive. In this paper, the research sample is selected from manufacturing listing Corporation in 5years,on the one hand, manufacturing is the foundation of our national economy, Manufacturing listing Corporation also accounted for more than half of the total number of listing Corporation in china, on the other hand, in the study of the investment efficiency, fixed investment accounted for the main part, while fixed investment in the manufacturing listing Corporation has a greater impact on the performance.This paper adopts the method of combining normative analysis and empirical analysis. First of all,I define the concept of inefficient investment and executive incentive, then I put forward the theoretical analysis. After that I carry on the empirical analysis, then the empirical analysis is carried out with the data of the manufacturing listing Corporation, and I use the STATA software to carry out descriptive analysis, correlation analysis, regression analysis and robustness test.In the process of empirical research, I construct the optimal investment model at first, then according to the difference between the actual number of new investment amount and the fitted value model the size of inefficient investment is determined. It contains overinvestment and underinvestment, so as to study the current situation of the investment efficiency of China’s manufacturing industry. Combined with the actual situation of our country, the model of the influence of the executive incentive to overinvestment and underinvestment is constructed. Then I put forward the hypothesis to study the influence of different incentives to investment.The empirical results show that the inefficient investment in the manufacturing enterprises in China is widespread, and the phenomenon of over investment is more obvious. Equity incentive can inhibit the underinvestment in a certain extent, Compensation incentives and promotion incentives can play a very good role in underinvestment and overinvestment, while the level of perks will increase overinvestment. According to the empirical results of this paper, I give some suggestions on how to implement explicit incentive and implicit incentive for enterprises.The practical significance of this paper is:The manufacturing industry is the foundation of our national economy, the development of economy is closely related to manufacturing industry, but after the financial crisis, especially in recent years, our country is facing tremendous pressure from the economic downturn, our country put forward the plan called’Made in china 2025’, China’s manufacturing power building needs three steps, this is the first ten years of the program of action. At this stage, the consumption is insufficient, the export is lack of power, how to improve the investment efficiency, and promote the transformation and development of manufacturing industry is particularly important. In this paper, we select the data of Listed Companies in China’s manufacturing industry from 2009 to 2014, it has very good practical significance to study the current situation of the investment in manufacturing industry and improve the investment efficiency of enterprises through the executive incentive.The innovation of this paper:the new perspective, At present, the domestic and foreign research is mainly on the relationship between executive incentive and corporate performance, the research on the correlation between executive incentive and investment efficiency is very few, but this paper takes into account two situations including overinvestment and underinvestment. In the choice of explanatory variables of executive incentive, I take into account the implicit and explicit incentive, especially the promotion incentive, so my study is more comprehensive.