Deviant Strategy, Executive Compensation Incentive And Auditor Choice

American scholar Chandler(1962)introduced the word "strategy" into business management.At this point,more and more scholars began to explore the charm of strategy.The long-term development of a company is inseparable from the formulation of the strategy,while companies in the same industry usually adopt a similar strategic model because it bears the same legal,political and economic risks(Meyer and Rowan,1977).This conventional industry strategy,which has been formed over time,tends to be stable and safe.However,with the increasingly fierce market competition,this conventional strategy does mean risk and backwardness for some companies.Therefore,many enterprises,especially small and medium-sized enterprises and new entrants in the industry,are more willing to adopt unconventional strategies,give full play to their specialties in a certain field,gain more competitive advantages and expand market share.Usually,the academic community defines this strategy that deviates from the industry's routine as a strategic difference,while the degree of corporate strategic differentiation is a measure of the degree of deviation(Tang et al.,2011;Ye Kangtao et al.,2014).The management of enterprises is not only constrained by strategy,but also has agency problems(Jensen and Meckling,1976),which emerged with the development of modern enterprises.The contradiction between the principal and the agent,that is,the behavior of both parties pursuing the maximization of their own interests often harms the interests of the other party.The principal wants the agent to work hard and charge less,and the agent wants to obtain High pay and more leisure time.In order to obtain more benefits,the client has to pay agency costs,allowing agents to work more seriously,executive compensation incentives and external audit is a more effective means.On the one hand,compensation incentives can enhance the enthusiasm of executives.On the other hand,external audits can supervise and restrict executive behavior by issuing audit reports.The success of a corporate strategy is often not a one-time process.It requires a certain period of time.In this process,companies need to continuously invest resources such as capital,technology and labor costs,which have higher demand for financing scale(Ittner et al.,1997).The reputation mechanism of high-quality auditors can help companies gain investor confidence.On the other hand,the highly differentiated strategy represents opportunities and risks.It may push the company to the peak of success,or it may fall into the bottom of failure.Once the company's performance declines,the business risk increases significantly,and the auditor may Issue a more rigorous audit opinion(Wang Baiqiang and Wu Lina,2017).Executive compensation incentives,as a way to mitigate agency conflicts,may prompt executives to implement this radical strategy because it represents higher incomes and more opportunities for advancement.But there are also executives who choose to avoid risk because they can rely on industry-based strategies to get good pay,while a highly differentiated strategy represents less free time and possibly less pay.In addition,executives may also implement opportunistic behavior when they are not doing well.Based on the above analysis,this paper proposes the following considerations:(1)Does the degree of corporate strategic differentiation affect the auditor's choice?(2)How does executive incentives affect corporate strategic differentiation?(3)If there is a link between the degree of strategic difference between the company and the choice of the auditor,what role does the executive incentive play in it?(4)Does the incentive mechanism play its full role and effectively suppress the agency conflict between shareholders and executives? In order to explain the above problems,this paper combines the existing relevant literatures at home and abroad,based on the research of enterprise strategic management theory,principal-agent theory,signal transmission theory,etc.,with 15797 A-share non-financial enterprises in Shanghai and Shenzhen in 2007-2016.The observations were samples,and software such as Excel and Stata were used to test the relationship between corporate strategic differentiation,executive compensation incentives,and auditor selection.The study found that when the corporate strategy deviates from the industry's regularity,the company is more willing to hire high-quality auditors to meet its financing needs.When the incentive incentive intensity of executives is greater,the higher the probability that enterprises will hire high-quality auditors,the better the effectiveness of executive compensation incentives,the supervision of executive behavior,and the use of the auditor's reputation mechanism to signal to the market.Executive compensation incentives will enhance the positive relationship between corporate strategic differentiation and auditor selection.To some extent,executive compensation incentives have fully played a role.This paper combines corporate strategy with internal and external corporate governance.Relevant research conclusions have certain theoretical guiding significance for policy makers to influence executive strategy and stimulate high-quality auditing requirements through executive compensation incentives,enriching agency costs.Related research.