Research On The Impact Of Vertical Interlocks Of Executives On The Corporate Performance

The separation of ownership and management rights is an important feature of modern enterprises.Basically,major stakeholders do not directly manage the corporation but delegating administration to professional managers.In light of the above process,the possibility of achieving expected goal depends on how effective the way the manager operates the organization.According to the "economic man"hypothesis,both stakeholders and administrators aim to pursue maximization of their self-utility.Therefore,managers will not always try to gain maximum profit from the perspective of shareholders.Furthermore,the information advantage out of closer contact of hired administrators to the corporation than those hands-off stakeholders boosts administrators’ behaviour of rent-seeking when they manage the company out of personal gain,such as manipulating salary,increasing on-the-job consumption,seeking personal gain,building a business empire,etc.This situation can be worse especially when the governance mechanism within the organization exists flaws.It is easier for external managers to take control beyond their predefined duty,further stimulating the adverse selection and moral hazard.Consequently,it will cause the increase of agency costs and damage the both interests of shareholders and corporate performance.In order to protect their own interests,the major shareholders,acting as"external stakeholders" of the company,has a strong motivation to participate in corporate governance to strengthen supervision and incentives for managers to enhance corporate performance.However,major shareholders locate at the state of"long-term supervision and indirect control" in the monitoring mechanism from the perspective of corporate governance.They have little say in the daily operation and management of listed companies and cannot truly participate in the company’s operation and management.For the sake of the problem-solving,some scholars have suggested that major shareholders can delegate directors to listed companies.However,due to information asymmetry between the board of directors and management,it is difficult for directors to directly exert pressure on managers and more difficult to restrict the self-interest behaviours of managers to improve corporate performance.In contrast,it may be more effective to delegate the senior management or a director which share common interest of the company to directly take the concurrent duty of management in a listed company(that is,to set up vertical interlocks of executives):on the one hand,the vertical interlocks of executives provide the major shareholders with an access to overall operation of company and thus further supervise and constrain the manager;on the other hand,they also provide opportunities for the major shareholder to closely contact with managers,which helps to reduce the information asymmetry between the two and additionally generate the effect of convergence of interests.Then,as an important channel for major shareholders to participate in corporate governance,can vertical concurrent executives effectively monitor and constrain managers,and can they further improve their business performance?For the inquiry of the aforementioned problems,this paper discusses the influence and its mechanism of vertical interlocks of executives on corporate performance based on principal-agent theory,Managerial power theory and social capital theory referenced from relevant literatures at home and abroad.The internal and external governance environment of the enterprise analyses whether the impact of vertical interlocks of executives on corporate performance varies under the different roles of Managerial power and marketization.In the part of empirical analysis,this paper takes the data of Shanghai-Shenzhen A-share listed companies from 2010 to 2017 as the research sample,constructs a regression model,and uses statistical analysis software to make descriptive statistical analysis,correlation analysis and multiple regression analysis on related variables.It verifies the impact of vertical interlocks of executives on business performance,and the regulatory role that managerial power and marketization processes act between vertical interlocks of executives and corporate performance.The theoretical analysis and empirical test results of this paper show that:First,vertical concurrent executives can improve the performance level of enterprises.This kind of promotion is mainly to bring "more supervision" and "more" to enterprises through vertical concurrent management.The resource" effect is achieved.Second,the governance role of vertical concurrent executives is somewhat restricted by management power.That is,in enterprises with greater management power,the positive impact of vertical concurrent executives on firm performance is relatively low.Third,the marketization process will affect the relationship between vertical and concurrent executives and corporate performance.With the gradual improvement of market-oriented development level,the positive role of vertical concurrent executives in corporate performance will be strengthened.According to the research conclusions,this paper proposes the following policy recommendations:First of all,making full use of the informal system of concurrent and vertical interlocks of executives to strengthen the supervisory function of major shareholders through vertical concurrent senior management and improve the supervision and restraint mechanism for managers,and to attach importance to the essential role they act in integrating social resources and promoting communication between enterprises.Besides,we must pay attention to optimizing the internal structure of the company,designing reasonable power structure arrangements,clarifying the powers and responsibilities of the management and creating a good internal governance environment for the vertical-adjunct executive.Lastly,to speed up the process of market-oriented development,improve the level of marketization,in addition to refining the market mechanism,and providing a good external governance environment for the vertical interlocks of executives to perform well.