Research On The Impact Of Executive Incentives On Corporate Risk Behaviors

Because of the self-interest of human and the incomplete contract,the principal-agent problem becomes uncertain and complex.By the way,the principal-agent problem has been a matter of great concern and attention to the owners and scholars.Moreover,due to the particularity of the identity of the executives,the moral hazard and rent-seeking behavior of the executives will bring huge risk to the enterprise and shareholders.The principal always tries his best to make the agent serve the interests of the enterprise and the principal.But agent may make against to the wishes because of the self-interest.It is almost impossible to do an accurate and comprehensive oversight of executive work.So,the incentive for executives has become the main means to stimulate the executives to serve the interests of enterprise and shareholders.Theoretically,the moral hazard of executives can lead to the tendency of risk preference or risk aversion,then executives may make a high risk/risk aversion decision.These inappropriate decisions will eventually reflected in the form of corporate risk behavior.So,in reality,is it really the case?This article through case analysis method,to Sichuan Changhong from the industry leading down to the events of three current household electrical appliance enterprises now,explains the internal factors of Changhong’s two major decision mistakes from the perspective of executive incentive,and then reveals the impact of executive incentive on corporate risk behavior.