Executive Incentive, Internal Controls And Corporate Social Responsibility

Nowadays,Chinese economy is enjoying a fast development momentum.Sadly,new hot topics,including underground water pollution,PM 2.5 and haze,enter people’s vision in a succession,which indirectly show the domestic environment situation and energy pressure become increasingly severe.Undoubtedly,such problems are caused by Chinese long-term insistence on extensive economic development.In addition,numerous domestic enterprises that neglect social responsibilities and emphasize economic benefits cannot shirk their responsibilities for such negative consequences.Due to the negative externality of corporate behaviors,the contradictions between enterprises and their stakeholders become gradually accelerated and keep causing bad social phenomena,including illegal cooking oil and illegal black kilns.As a result,stakeholders pay more attention to and encourage enterprises to take active social responsibilities.Domestic and foreign researchers mostly discuss corporate social responsibilities through empirical research and have analyzed from the internal factors(including real estate nature,corporate governance and growth)and external factors(including market-orientation progress and industrial competition).The thesis mainly researches how to improve the implementation of corporate social responsibilities from the perspective of executive incentive and internal control.In addition,the thesis needs to answer a series of questions: How to determine the short-term salary level of corporate senior executives reasonably? How to set up a long-term corporate incentive and restriction mechanism? Will appropriate executive incentives promote the implementation of corporate social responsibilities? Will internal control restrict the bad social behaviors of enterprises?To answer the above-mentioned questions,the author collected and arranged domestic and foreign literature on the relations between executive incentive,internal control and corporate social responsibilities.Based on the stake-holder theory,principal-agent theory,interest convergence theory and management entrenchment theory,the author selected the listing companies which published corporate social responsibility reports between 2013 and 2015 in domestic Shanghai and Shenzhen A-share markets to discuss how the implementation of corporate social responsibilities is affected by internal control and executive incentives.Based on empirical research conclusions,the author proposed policies and advice on executive incentive and internal control to promote the implementation of corporate social responsibilities.In the research process,the author divided executive incentives into short-term incentive(salary)and long-term incentives(equity)according to timeliness and conducted empirical research respectively.In addition,the author introduced the third variable,namely internal control,to research whether internal control plays the role of adjusting effect or the role of agency effect when the executive incentive affects corporate social responsibilities.According to research findings,four conclusions are drawn:(1)There are significant positive correlations between executive salary incentive and corporate social responsibility implementation level,meaning the salary incentive is favorable for improving the corporate social responsibility level to some extent;(2)There is a significant inverted-U shaped curve between executive incentive and corporate social responsibility implementation level,meaning the level of corporate social responsibility implementation rises as executives’ low proportion of shares increases.When executive managers hold a proportion of shares that exceeds the critical value,the level of corporate social responsibility implementation lowers as the shares held by executives increase;(3)There are significant positive correlations between internal control and corporate social responsibility implementation level,meaning a perfect internal control promotes companies to implement their social responsibilities to some extent;(4)Senior executives’ equity incentives can affect the level of corporate social responsibility implementation indirectly through internal control.In other words,internal control plays the role of mediating effect when senior executives’ equity incentives affect the level of corporate social responsibility implementation.Lastly,the thesis proposed different policies for enterprises with different executive incentive structures to improve long-term corporate values and achieve sustainable corporate development based on research conclusions:(1)For companies which didn’t implement equity incentives,both executive salary incentive(short-term)and executive equity incentive(long-term)help to solve the contradictions between operators and owners to some extent,increase long-term corporate values and improve the level of corporate social responsibility implementation;(2)Companies which have implemented equity incentives at a low level should adopt appropriate policies to increase the equity incentives to senior managerial staff;(3)Companies which have implemented equity incentives at a high level should adopt the policies of decreasing equity incentives and increasing salary incentives;(4)All enterprises should pay adequate attention to the spillover effect of internal control in corporate social responsibility implementation,so as to help enterprises control potential social responsibility risks and facilitate social responsibilities.