Executive Pay Gap,Equity Capital Cost And Corporate Performance

With the gradual development of market economy,the status of listed companies in the market has become increasingly important.In corporate governance,due to the separation of ownership and management rights,it will inevitably lead to information asymmetry,and then there is a commission-agent problem.The commission-agent problem will result in higher supervision costs,and lead to low administrative efficiency of the company,stagnating management level,and making the company's development into a difficult situation.Executive compensation incentives are effective internal governance mechanisms to reduce information asymmetry,solve the commission-agent problem,satisfy the interests of owners and operators simultaneously,and align the goals of both parties.It could complete the company's long-term developing objectives with keeping it developing steadily.Recent research has shown that there is a close relationship between executive compensation and company performance.Executive compensation has a strong incentive effect on company performance.However,due to the lack of understanding of the equity capital cost for a long period of time,our country's enterprises have not formed a scientific concept about the cost,it makes the equity capital cost cannot play a role in the corporate governance mechanism.Based on the characteristics of championship theory and behavior theory,combining the equity capital cost,using the panel data of China's Shanghai-Shenzhen A-share listed companies in 2011-2016,and introducing an mediating effect model,we try to find out the relationship between pay gap,equity capital cost and corporate performance.The final empirical results show that: First,an increase in the pay gap between executives can inspire company productivity and improve company performance.The relationship between pay gap and corporate performance is an inverse U-shaped nonlinear relationship.Second,when the pay gap between executives of a company has been enlarged,the company's equity capital cost will decrease relatively.There is an inverse relationship between the equity capital costand the executive compensation gap.Third,the equity capital cost can significantly affect corporate performance.Forth,the equity capital cost can be used as an intermediary variable,which has a positive mediating effect on company performance.The study of this paper shows that listed companies can effectively solve commission-agency problems and achieve executive compensation incentives by increasing executive pay gap and reducing the equity capital cost.It is a perfect way to improve corporate performance.