Governance In Capital Market And Executive Compensation

In the 19th National Congress of the Communist Party of China,President Xi has emphasized that developing capital market is one of our revolution commission.The reason why we develop capital market is that it not only help the corporation financing but also strengthen the supervision on the listed companies.In recent years,the significant shareholding by institutions happens from time to time.But related research is limited.In this paper,we take 2006-2017 A share listed companies as a sample,manually collect and organize the related data of significant shareholding,and we apply PSM-DID approach to investigate the governance effect of capital market on cash pay and equity pay of executives,and further study whether the impact of the change of compensation structure will positively change the executives' incentive and affect the company's financial behavior.Our study found that significant shareholding of institutions will not affect the executives' total pay.Instead,it will change the structure.Specifically,it decrease the excess cash pay and promote the equity pay in order to build up an effective and rational compensation structure.The test of mechanism shows that the governance takes effect by attract the market concern of financial analyst and media,and the significant shareholding will send the signal that the institutions are willing to intervene.Further study shows that the compensation structure will not lead to higher perk consumption,because the managers with shareholding will not devalue the company.In consequence,the governance improvement by capital market can not only improve the company's performance but also strengthen the investors'perspective of such kind of market behaviors.Our study not only reveals the effect and mechanism of governance by significant shareholding by institutions in a micro view,but also expend the study of governance of capital market And our study is helpful for related policy.