Can Institutional Investors Be Able To Make Up For Loopholes In The Failure Of Compensation Incentives?

Until now,the plan of executive compensation incentive has been considered to be the most effective measure to mitigating the first layer of proxy conflicts.The plan of currency compensation not only can supervise executive to work hard but also reduce the agency costs.The plan of equity incentive can converge the objective functions of executives and shareholders.So no matter what kind of compensation incentives can play an incentive role.But the proof of practical experience is that both types of compensation incentives sometimes may be out of order.Because of the tow ways of incentives is based on the accounting indicator,executive may manipulate surplus in order to improve the level of pay.Institutional investors have the advantages of scale and specialization,so they have sufficient ability to identify the quality of accounting earnings information.When institutional investors become shareholders of listed companies,they can not only enhance the voice of small and medium shareholders in corporate governance,but also supervise the daily management activities of senior executives.Therefore,from the perspective of supervision,the involvement of institutional investors can suppress earnings management behaviors which are detrimental to the value of the company.In this case,the focus of this paper is that whether institutional investors can play a supervisory role when compensation incentives are not work.This paper selects the data of all A-share listed companies in 2011-2017 as a preliminary sample.The study concludes that institutional investors can really play a supervisory role,but when different compensation incentive plans fail,their supervisory roles are slightly different.With the increase in the proportion of institutional investors,earnings management behavior induced by monetary compensation incentive is significantly reduced,but earnings management behavior induced by equity incentive has increased.