Empirical Study On Interlocking Directorate's Network,CEO Compensation And Corporate Performance

CEO's high compensation has been an everlasting topic among academic and business circle.There has been abundant research on how company and CEO's personal factors will affect CEO's compensation.Nowadays Interlocking directorate's network has become universal that a huge network has formed among companies.In this work,we introduce interlocking directorate's network to perfect the study on the impact of corporate governance to CEO's compensation.Then explore how this impact will influence company's subsequent performance.Firstly,the regression of CEO's compensation with interlocking directorate's network centrality shows that directorate's network centrality has a significantly positive impact on CEO's compensation.There might be two influence paths.(1)The network prvides directors with sufficient resources and information about corporate governance and compensation design.CEO's compensation may contain incentive that makes the level of CEO's compensation more reasonalble and perfect.(2)If the director serves more boards of directors and sit on the more central position of the network,it will take lots of time and energy that he may not implement the supervisory duties well.In that case,CEO of this company is more likely to make effect on his compensation using his power,which makes CEO's compensation higher.Then,we choose part of CEO's compensation caused by corporate governance as CEO's excess compensation,and make a further study on the impact of excess compensation on next year's corporate performance.The regression results show that CEO's excess compensation has a significantly positively impact on next year's return of equity.This positive correlation further proves that the possibility of the existence of the first hypothesis described above.Different from Core's study,corporate governance has a positive effect on company's performance in China.The involvement of corporate governance factors can make CEO's compensation more complete and perfect,which also have a positive impact on company's future performance.The main contribution and innovation of this work is to provide a new perspective of interlocking directorate's network for the study on CEO's compensation.Cash compensation and total compensation which includes shareholding returns are both used as CEO's compensation.We also did a further test of the effect of CEO's excess compensation on the corporate performance.The study will provide valuable references for enterprises to set up perfect CEO compensation incentive mechanism and improve the level of corporate governance.