Executive Explicit Incentives,Risk Level And Company Financial Performance

As an important measure of corporate governance,executive incentive is related to the level of executive's effort and management efficiency.The separation of two powers has led to many problems such as agency costs and lack of supervision.Enterprises have promoted the convergence of executives and shareholders through explicit incentives such as monetary compensation,thereby reducing the agency risk.Executives as agents have a risk aversion tendency,the implementation of executive incentive policies will change their risk preferences and decision-making behaviors,thus affecting the company's risk level and financial performance.Based on principal-agent theory,incentive theory and optimal contract theory,this paper uses the A-share listed companies' panel data from 2008 to 2017 to analyze the relationship between executive incentives,risk level and financial performance by using the mediating effect model and Sobel test,and then this paper further tests the mediating effect of the risk level.The empirical result shows that both monetary compensation incentives and equity incentives are positively related to financial performance,which confirms the view that explicit incentives can help alleviate agency conflicts and improve performance in principal-agent theory and incentive theory;And monetary compensation incentives are negatively correlated with risk levels,because a high proportion fixed salary will increase the risk awareness of executives and lead them to avoid risks;The equity incentive is positively related to the risk level,because the ownership incentives make the executives have the shareholder status and tend to risk appetite and thus enhance the risk level of enterprises.Through the mediation effect test,this paper found that the company's risk level is the mediator variable of the executive's explicit incentives affecting financial performance,and the executive's explicit incentives affect the financial performance through the company's risk level.Finally,this paper proposes reasonable suggestions to improve corporate governance and corporate performance by increasing the proportion of performance compensation,increasing incentives for restricted stocks,and establishing a company's risk management system.