Executive Compensation,Corporate Characteristics And Cost Of Debt

Executive compensation system design is an important part of corporate governance.Since 2003,China has required listed companies to disclose the annual salary information of their managers in their annual reports.This policy not only helps to alleviate the information asymmetry between companies and investors,but also helps investors in the capital market to understand the internal system of the company.Therefore,investors can more comprehensively and accurately assess the impact of managers' compensation on the expected return and risk level of the company based on the disclosure of compensation information.In the past literature,the literature on the economic consequences of executive compensation has been relatively abundant.However,there is still more room to study the capital cost effect of compensation information.At the same time,scholars pay more attention to the impact of the disclosure of managers' compensation information on the decision-making of equity investors,while less attention is paid to the impact of managers' compensation information on the cost of debt.In this paper,we use the data of listed companies from 2007 to 2017 as the research samples,and finally get 17262 observations.Empirical research is carried out on how managers' salary affects the cost of corporate debt,and the following results are obtained:(1)There is a significant negative correlation between managers' salary level and corporate debt cost,which indicates that higher managers' salary level releases a positive signal on the whole,thereby reducing the risk of creditors' return.and also the cost of corporate debt.(2)In the impact of corporate financial characteristics,the higher the level of capital structure(financial leverage)based on corporate risk perspective,the weaker the negative correlation between managers' compensation and debt costs;and the stronger the profitability based on corporate income perspective,the more conducive to enhancing managers' compensation on debt costs.(3)Further based on the analysis of property rights nature differences in non-financial characteristics,the nature of state-owned property rights will significantly strengthen the effect of managers' compensation on cost of debt.On the one hand,the conclusion of this paper shows that the level of managers' salary not only has the function of internal governance,but also has external influence.It will affect the risk return of creditors and ultimately affect the cost of debt in the company through the path of risk perception of creditors' investors.On the other hand,the conclusion of this paper also shows that the profitability,financial risk and property rightnature of corporate characteristics will significantly affect the corporate risk perceived by creditors,and then have a moderating effect on the negative correlation between compensation and the cost of debt.The results of this study reasonably explain the logical relationship between managers' salary and debt cost in Listed Companies in China,and provide practical suggestions for the governance of companies and supervisors.At the same time,the conclusion of this paper not only enriches the information asymmetry,incentive theory and principal-agent theory,but also enriches and improves the relevant literature on compensation governance,debt financing and property rights.