Research On Sensitivity Of Top Management Compensation-Performance Of Listed Companies Based On Debt Cost

Classical principal-agent theory emphasizes the conflict of interests between shareholders and management,creditors and shareholders,respectively.As far as corporate governance is concerned,implementing performance-linked compensation incentives for executives is an effective way to mitigate the first-level agent conflicts.Therefore,it has been the focus of scholars' theoretical research and the improvement of corporate governance structure for how to formulate an effective executive compensation contract.However,with the continuous development of the capital market,the strengthening of the role of debt financing in business operations,and the promulgation and implementation of protection of creditors' interest-related laws and policies,creditors are one of the main providers of corporate funds and one of the benefit claimants,in order to protect their own interests,The role of external supervisors in influencing corporate internal governance will continue to increase.Combining the two-tiered agency cost issue,this paper believes that formulating a highly-reliable compensation contract with corporate performance can lead to a convergence of interests between corporate owners(shareholders)and agents(management),thereby avoiding the "moral risks" of senior executives to some extent.Problems such as "and adverse selection," work hard to improve the company's performance and maximize shareholder wealth and profits.However,as a rational creditor,it is bound to pay attention to the establishment of various mechanisms such as the pay contract of the lending company,and consider whether the management would risk the loan inconsistent with the benefit for itself and the shareholders.Some studies have considered that designing and implementing executive compensation contracts that are highly sensitive to corporate performance can mitigate the conflicts of interest between shareholders and management,align their objective functions,and work hard to improve their business performance.Pay contracts can cause creditors to be highly vigilant about their debt risks.During the process of lending decisions,they will require higher interest rates and more restrictive clauses to prevent management from infringing on their interests through risk transfer,thereby exacerbating the interests of creditors and shareholders.Conflicts increase the cost of debt agency.Since 2007,China's credit policy has continued to develop,and market-oriented interest rate reforms have been proposed and implemented one after another.In 2013,the lending rates of financial institutions were fully liberalized.At the same time,China has also passed legislation to protect the legitimate rights and interests of creditors.In 2013,the "Regulations on the Supervision of Listed Companies" stipulates on the supervision and protection of the interests of creditors.Some surveys have shown that,as rational creditors,banks,financial and credit institutions,and bond investors often have a comprehensive understanding of the internal financing mechanism,financial status,and cash flow of debt financing companies during the decision-making process of lending or investment.,then the executive compensation contract as an important part of internal governance issues will be regarded by creditors as an important source of information and a judgment basis.Under highly sensitive compensation contracts,creditors have reason to suspect that management's blind pursuit of high-risk projects in order to improve corporate performance results in infringement of their own rights and interests.Therefore,interest rates will be increased,restrictions will be imposed,and restrictions will be reduced.The method of debt maturity,as a measure to protect one's own interests,ultimately increases the debt agency costs of the lending companies.In addition,at present,the development of the capital market,especially the debt market,is still immature and perfect.Bank debt is the main source of corporate debt capital,and banks are more scientific and rigorous in their inspection of companies during the process of lending.Therefore,companies need to fully consider the impact of creditors on corporate governance.Based on this,this paper analyzes and summarizes the existing domestic and foreign literature,combines the actual background of the listed companies in China,and uses the theory of classic principal-agent theory,optimal contract theory,information asymmetry theory,and agency cost theory as the theoretical basis and combines with China.Based on the perspective of the creditor,the background of the property rights and the internal management authority power,put forward research hypotheses,and then use the collected data and regression model to empirically test and analyze the relationship between debt costs and corporate executive compensation contract sensitivity.Specifically,this paper selects A-share listed companies from Shanghai and Shenzhen in 2007-2016 as a sample ofthe study.First,it proposes a lead-out assumption,that is,the correlation between executive compensation and company performance,and then through interest expense/(Short-term borrowings + long-term borrowings + bonds payable + long-term payables + long-term loans due within one year)The relationship between the cost of debt and the sensitivity of pay performance is tested against the background of the reform of state-owned enterprises in China.The empirical data of China's listed companies are tested,and the sample is divided according to the nature of the property rights and the two-time or part-time status,and the differences in how the debt costs affect the executive compensation-performance sensitivity under different circumstances are studied.In order to draw valuable conclusions,some policy recommendations are made on the internal governance mechanisms of enterprises,the formulation of executive compensation contracts,the reform of state-owned enterprises,the effect of debt governance,and the protection of the interests of creditors.This article analyzes and validates the mechanism between the cost of debt and the executive sensitivity of executive compensation.From the perspective of debt cost,this paper discusses the influence of creditor external relationship network on salary-performance sensitivity,enriches the research results of capital structure and executive compensation incentives,and provides useful reference for effectively exerting debt on corporate governance.