Empirical Research About Debt Constraints&Executive Compensation And Over-investment

The core of financial management is investment activities, the successful investment decisions in a firm will largely improve the company’s performance and increase enterprise’s value. Many scholars’ studies have shown that Chinese enterprises really exist serious phenomenon about over-investment, and because of China’s special property background, this phenomenon can not be simply alleviated. Therefore, from the perspective of incentives and constraints, if we examine the relationship between debt constraints and over-investment, as well as the relationship between executive compensation and over-investment, it will become an important direction of research in the field of financial management. However, we lack of relevant references about how the debt constraints and incentive mechanism interact to the over-investment issue. In this paper, we use the data of Chinese listed companies from 2009 to 2013, and we find that both debt constraints and executive compensation can reduce the over-investment issue, and the interaction is complementary. However, the relationship is different under different concentration ratio. In order to further confirm, we divide the samples into monopolistic and competitive enterprises, making the subject more meaningful in theoretical and practical level.In this paper, the results of research enrich the agency theory, opportunistic administration, incentive theory, etc. In addition, from the perspective of internal and external governance, we encourage debt constraints and executive compensation to work together to promote the rationalization of enterprise investment. The paper suggests that the external governance and internal governance should go hand in hand. In the meantime,constraint mechanism and incentive mechanism can be combined to reduce the over-investment issue and enhance corporate value.