Capital Market Liberalization And The Effectiveness Of Executive Compensation Contract

Capital market opening is an important embodiment of the national reform and opening policy in the economic field.It is of great significance to improve the efficiency of capital market resources allocation and optimize the structure of market investors.China has been actively exploring a reasonable model of capital market opening,emphasizing the use of a higher level of capital market opening to release the potential of economic development,and has issued a series of measures to this end.The most notable of these is the “Decision on Comprehensively Deepening Reform of Some Major Issues” and the “China Financial Stability Report” issued by the State Council and the People's Bank of China in 2013 and 2017 respectively.The document emphasizes that the two-way opening of the capital market is a sound financial system in China.The key link must be the long-term insistence on opening up the capital market as the main tone of China's financial reform.The government attaches great importance to the opening of capital market,which causes the academic circle to pay continuous attention to relevant issues.At present,Chinese scholars' research on capital market opening is mainly reflected in the macro level,exploring the impact of capital market opening on macroeconomic growth,market linkage and market pricing efficiency.In fact,the impact of capital market opening is multi-layered.In addition to the impact on the macro economy,the impact on the micro economy cannot be ignored.For example,corporate governance will inevitably be affected.The quality of corporate information fed back by corporate governance is of great reference significance for overseas investors to reasonably judge corporate value and improve resource allocation efficiency of capital market.It is an excellent perspective to study the microeconomic consequences of capital market opening.Scholars in developed countries such as Britain and the United States have conducted in-depth studies on the impact of capital market opening on corporate governance.However,most of these studies are based on foreign markets and lack empirical evidence from China's capital market.Therefore,the investigation of the impact of capital market opening on corporate governance can not only enrich China's research on the microeconomic consequences of capital market opening,but also has important practical significance for better realizing financial development and serving the real economy.One of the research hotspots of corporate governance is the information asymmetry between management and shareholders.The key step to solve this problem is the design of compensation contract.Effective compensation contract can reduce earnings management and alleviate agency conflicts.In recent years,the compensation contract design of some listed companies in China has been questioned by the public,mainly because the quality of accounting performance indicators in the capital market is low,which causes the decoupling of executive compensation and performance indicators.Modern corporate governance theory suggests that the enhancement of effective supervision can improve information quality and reduce performance noise.One of the important means to strengthen supervision is to open the capital market and introduce foreign investors.Foreign investors have higher maturity and value relative to domestic retail stronger recognition ability,have certain professional advantage,can better give play to the role of market supervision,reduce the degree of information asymmetry between shareholders and executives,and improve the quality of performance indicators,and thus increases the sensitivity of the between executive compensation and corporate performance,and improve enterprise effectiveness compensation contracts.The Land-Hongkong stock connect mechanism,collectively known as the Shanghai-Hongkong stock connect and Shenzhen-Hongkong stock connect,has realized two-way opening of the capital market.Different from the previous QFII and other systems,it is a new perspective to explore the economic consequences of the opening of the capital market at this stage.Based on this,this paper selected the statistical data of a-share listed companies listed in Shanghai and Shenzhen from 2012 to 2017 as samples,and used panel DID to analyze the impact of capital market liberalization on the effectiveness of executive compensation contracts.The main conclusions of this paper are as follows:(1)the opening of the capital market enhances the sensitivity of executive compensation performance,the compensation design of listed companies changes,and the effectiveness of compensation contracts increases;(2)the positive effect of capital market liberalization on executive compensation contracts is more obvious in enterprises with low information transparency;(3)the positive promotion effect of capital market liberalization on corporate compensation contracts is more obvious in enterprises with low shareholding by institutional investors.Further research shows that:(1)the important channels for the opening of capital market to improve the effectiveness of executive compensation contract are to alleviate agency conflicts,reduce related transactions and reduce analysts' forecast deviation.(2)the opening of capital market alleviates the financing constraints of enterprises,which is another manifestation of the opening of capital market to give play to the effectiveness of external governance.The paper contribution may have the following several aspects:(1)from the perspective of executive compensation contract,the microscopic economic consequences of the opening up of the capital market,in addition to the effect of the policy of our country capital market opening providing empirical evidence,also improve the from all walks of life to open the external capital market awareness of the role of corporate governance,expand the scope of the research of this field.(2)enrich the research on the influencing factors of executive compensation contract.From the perspective of capital market opening to reduce information asymmetry,this paper enriches the research on the influencing factors of executive compensation contract,helps to evaluate the elaboration ability of "effective contract view" on executive compensation contract practice,and provides theoretical reference for promoting the marketization of compensation.(3)taking "Landport" as the research symbol,it provides policy reference for the next step of capital market opening.Capital markets open case study of executive compensation contract effectiveness not only reveals the "land port" mechanism play the role of the corporate governance of the utility,and could provide governance for listed companies and regulators and compensation contracts to prevent the failure of clues,for subsequent further the implementation of the capital market opening-up policy to provide theoretical evidence.