Research On The Influence Of Equity Characteristics On Relative Performance Evaluation:The Moderating Role Of Female Directors

In today’s increasingly complex business environment,in addition to the controllable factors of internal management,other external factors are also increasingly affecting the performance of enterprises.Under this background,the salary management decision based solely on performance is no longer convincing.The external factors faced by the company in the process of operation,such as macro policy regulation,economic cycle fluctuations,unexpected events,etc.,give too much noise to the company’s performance,which makes the performance reflect the process of operator’s behavior distorted,and the incentive provided by this information is likely to fail,thus making the executive compensation contract lose the expected incentive binding effect.It is based on this consideration that Holmstrom(1982)improved the original compensation contract by introducing relative performance evaluation(RPE)into the compensation contract based on the law of sufficient information.Despite the theoretical attractiveness of RPE,previous empirical studies have provided mixed evidence of the existence of RPE in executive compensation contracts.In order to unravel the "relative performance evaluation puzzle",scholars have gradually shifted their focus to the influencing factors of RPEs and conducted numerous studies accordingly,however,no scholars have yet systematically studied the consequences of their influence on RPEs from the perspective of equity characteristics.Based on the above background,this paper uses the principal-agent theory,the reference point contract theory,the management power theory,the human capital theory of managers and the manager’s market theory to carry out a systematic study on the relative performance evaluation effect in Chinese executive compensation contracts.The main content includes testing the existence of relative performance evaluation in Chinese listed companies.To explore the mechanism of different dimensions of equity characteristics on relative performance evaluation and the moderating effect of different positions of female directors on their relationship.The research samples are 23,470 pieces of unbalanced panel data of Chinese A-share listed companies in Shanghai and Shenzhen from 2011 to 2020,most of which are from CSMAR database,while A small amount of data are collected manually.The main findings of this paper include:(1)Non-state-owned enterprises are more likely to implement relative performance evaluation than state-owned enterprises.In addition,the presence of female executive directors inhibits the use of relative performance evaluations in non-SOEs,while female non-executive directors and female independent directors have no significant effect on the relationship between the nature of equity and relative performance evaluations.(2)The relationship between equity concentration and relative performance evaluation is not robust,showing two empirical test results of no significant effect and negative effect.In addition,female executive directors and female independent directors have no significant effect on the relationship between equity concentration and relative performance evaluation,while female non-executive directors strengthen the negative effect of equity concentration on the use of relative performance evaluation.(3)The higher the degree of equity checks and balances,the more firms tend to use relative performance evaluation.In addition,female executive directors and female independent directors have no significant effect on the relationship between equity checks and balances and relative performance evaluation,while female non-executive directors strengthen the positive effect of equity checks and balances on the use of relative performance evaluation.(4)Firms with controlling shareholder equity pledges tend to use relative performance evaluation.In addition,female executive directors have no significant effect on the relationship between controlling shareholder equity pledge and relative performance evaluation,while female non-executive directors and female independent directors reinforce the positive effect of controlling shareholder equity pledge on the use of relative performance evaluation.(5)The higher the shareholding of institutional investors,the less firms tend to use relative performance evaluation.In addition,female executive directors weaken the negative effect of institutional investors’ shareholding on relative performance evaluation,while female non-executive directors and female independent directors strengthen the negative effect of institutional investors’ shareholding on relative performance evaluation.(6)The longer the length of the control chain,the less firms tend to use relative performance evaluation.In addition,female executive directors weaken the negative effect of control chain length on the use of relative performance evaluations,female non-executive directors have no significant effect on the relationship between control chain length and relative performance evaluations,and female independent directors strengthen the negative effect of control chain length on relative performance evaluations.(7)There is an asymmetry in the use of relative performance evaluation by listed companies in China,and the participation of female directors in corporate governance can have a corrective effect on this phenomenon.This paper systematically explores the effects of different dimensions of equity characteristics on relative performance evaluation from the perspective of equity heterogeneity,and deepens the knowledge of the relationship between the two.In addition,from the perspective of power variability,female directors are introduced as moderating variables to explore their role in equity characteristics and relative performance evaluation,which expands the research boundary of female directors.On this basis,the study proposes realistic and guiding countermeasures for corporate governance practices from the perspectives of government,enterprises,and female directors themselves.Theoretically,this study helps to clarify the mechanism of the influence of equity characteristics on relative performance evaluation and opens the "black box" of the relationship between them.In practice,it lays a theoretical foundation for promoting enterprises to establish a relative performance evaluation system,and also provides a reference for enterprises to improve equity governance and optimize the gender structure of the board of directors.