Executive Compensation,External Audit And Inefficiency Investment

In the fully effective capital market described by Modigliani and Miller(1958),there is no agency cost in the enterprise,and the information between the shareholders and management,the creditor and the shareholders is completely symmetrical.The enterprise can fully rely on the investment decision to fulfill the goal of increasing the income of the enterprise,enhancing the value of the enterprise,and increasing the wealth of shareholders,which means that if there is no moral hazard and adverse selection in the capital market,enterprises may only invest in projects whose net present value is greater than zero.However,in modern corporate governance,because of the separation of two rights,ownership and management rights,the decision of capital investment will be greatly influenced by the problem of asymmetric information and the problem of agency.Therefore,it is an urgent task to discuss the reasons for the inefficiency investment behavior of the enterprises and to put forward a reasonable and effective improvement mechanism.In order to effectively curb inefficient investment,we should start with solving the root causes of principal agent and information asymmetry,and seek effective solutions.Therefore,the external audit as an external supervision mechanism,and executive compensation as a very important internal incentive mechanism in corporate governance,is the key breakthrough of the solution.Therefore,this paper samples the A shares companies which were listed in the Shanghai and Shenzhen two cities for 2014-2017 years as the research object,and studies the relationship among the executive compensation,the external audit and the inefficiency investment.The research of this paper can be categorized into the following six parts:The first part is the introduction.This part introduces the whole logistics of this thesis.The function of this part is to introduce the background.Besides,this part explains the theoretical and practical significance in this study.After that,this paper describes the specific research content and research methods.Finally,the innovation points of this paper compared with other relevant literatures are introduced.The second part reviews the literatures at home and abroad.This part reviews the literature from the following three aspects:(1)executive compensation and non-efficiency investment;(2)external audit and non-efficiency investment;(3)executive compensation,external audit and non-efficiency investment.Finally,this part concludes the characters of these literatures.The third part presents the mainly theoretical analysis and hypothesis.This part mainly takes the information asymmetry theory and principal-agent theory as the basis of the study,and through the optimal contract theory and corporate governance theory,this part concludes that executive compensation and external audit will affect the investment efficiency of enterprises.Therefore,this part introduces the specific content of the above theories and puts forward relevant assumptions based on the above theories.The fourth part presents design of all hypotheses.This part introduces the data source and sample selection of this study,builds the model on the basis of previous studies,and finally defines the related variables.The fifth part is empirical test and result analysis.First of all,this part analyzes the non-efficiency investment of a-share listed companies in Shanghai and Shenzhen.Secondly,this part conducts descriptive statistics to describe the distribution of data after processing.Then,after the correlation test,it was found that there was no significant collinearity between the explanatory variables and the explained variables.Finally,a regression analysis was conducted in order to test whether the external audit quality would have an impact on the relationship between executive compensation and the enterprise's non-efficient investment;At the same time,on this basis,it is studied whether there is significant difference under different property rights.In order to ensure the robustness of the empirical results,the robustness test is also carried out.The sixth part is the research conclusions and related Suggestions.This part firstly summarizes the empirical research results,and puts forward relevant suggestions from three aspects,including comprehensively and objectively looking at the compensation of senior executives,establishing a standard compensation system,and strengthening government departments' supervision on the audit industry.Finally,this part summarizes the deficiencies of this paper.The results of the empirical study show that the coefficient of executive compensation and inefficiency investment is significantly negative,indicating that the higher the executive are paid,the more effective the enterprise's inefficient investment can be suppressed;the external audit and the efficiency of the inefficiency investment are also significantly negative,indicating that external audit can inhibit inefficient investment.The external audit is introduced into the model of executive compensation and inefficiency investment,and it is found that audit supervision can play an alternative role in the function of executive compensation to suppress inefficient investment.Further,considering the property rights of listed companies,it is found that there are significant differences in the substitution effect of external audit on executive compensation between them.Innovation of this paper is mainly manifested in the novelty of the research perspective and the realistic pertinence of the research content,the integration of executive compensation,external audit and inefficiency investment into a model,which extends the research on the impact of executive compensation on investment efficiency,and provides reference for enterprises of external audit's impact on how to be an alternative of executive compensation in order to alleviate inefficient investment.