Effects Of Internal Corporate Governance Mechanisms On Unrealistic Upward Comparison Of Executive Compensation:The Moderating Role Of Female Executives

Executive compensation of listed companies in China has continued to rise,the phenomenon of "sky-high compensation" has emerged one after another,and the phenomenon of extreme internal and external compensation gap has intensified.In view of the failure of traditional principal-agent theory to effectively explain the executive compensation issue,in order to explore the static determination mechanism of executive compensation and the dynamic evolution mechanism of its continuous growth,existing research literature has started to try to explore this issue based on managerial market theory,reference point contract theory and social psychology perspective,and has made fruitful progress.Specifically,the academic community agrees and confirms that the effect of unrealistic upward comparison of executive compensation(UUCEC)exists widely in corporate practice,and has reached many consensus conclusions on the mechanism of the effect of UUCEC on the continuous high executive compensation,and has argued that the key reason for the uncontrolled executive compensation of listed companies in China is the excessive UUCEC in the industry.However,the current literature on UUCEC mainly focuses on the economic consequences of UUCEC psychology and behavior,and there is no research that systematically explores its formation mechanism from the perspective of internal corporate governance.In view of this,this paper focuses on the effect of internal governance mechanisms on executive compensation creep from the perspective of corporate governance,and further investigates the mechanism of female executives’ moderating effect on the relationship between them.Using a 10-year period of 20,589 unbalanced panel data of A-share listed companies in Shanghai and Shenzhen,China,from 2010 to 2019 as the research sample,a panel data regression model based on fixed effects is applied to propose and empirically test the effect of internal corporate governance mechanisms on UUCEC and the mechanism of the moderating effect of female executives on the relationship between the two.The empirical findings are as follows:(1)The negative effect of the proportion of independent directors on executive compensation creep is not robust,but female executives significantly suppress this tendency;the negative effect of the proportion of executive directors on executive compensation creep is not robust,and the moderating effect of female executives on the relationship between them is also not robust.(2)In the supervisory board governance mechanism,both the size of the supervisory board and the proportion of supervisory board negatively inhibit UUCEC,while female executives weaken their inhibiting tendency.(3)In the executive governance mechanism,the CEO’s dual position positively promotes UUCEC,while female executives negatively inhibit this tendency;the proportion of non-director executives positively promotes UUCEC,while female executives negatively inhibit this tendency.(4)Among equity governance mechanisms,equity concentration negatively inhibits UUCEC,while female executives weaken its inhibitory tendency;equity checks and balances positively promote UUCEC,while female executives negatively inhibit this tendency;state-owned ownership nature negatively inhibits UUCEC compared to non-state-owned ownership nature,while female executives weaken this inhibitory tendency.The rich robustness and endogeneity tests further ensure the reliability of the findings.The analysis of the mechanism of the indirect corrective effect of executive pay creep suggests that female executives as a whole do not support excessive executive pay creep,but at the same time take into account the potential problem of potentially insufficient executive pay incentives.Thus,on the one hand,female executives do not support excessive executive compensation creep,thus suppressing the facilitating effect of internal governance mechanisms such as non-director executive ratio and equity checks and balances on executive compensation creep;on the other hand,female executives weaken the suppressing effect of internal governance mechanisms such as supervisory boards,equity concentration and the nature of state-owned property rights on executive compensation creep for the sake of preventing underpayment.From an intra-firm perspective,this study systematically reveals the differential influence mechanisms of different intra-firm governance bodies on executive compensation creep,portrays the indirect corrective effects of female executives on executive compensation creep,and further argues for their profit motives.The theoretical analysis and empirical data show that the close interaction between female executives and different internal governance bodies changes and optimizes the original decision-making motives and criteria of the latter on executive pay escalation,thus controlling the executive pay escalation to a relatively reasonable"threshold range" and working on It aims to maintain a delicate balance between "controlling excessive power rent" and "preventing insufficient executive compensation incentives".On this basis,we propose theoretical and practical countermeasures for corporate governance practices and the development of female executives from the perspectives of enterprises,female executives themselves and the government.