A Study On Executive Control Rights And Self-serving Behavior

The separation of ownership and management promote the development of the modern companies, but also lead to the agency conflict between shareholders and management (Jensen and Meckling, 1976). According to the agency theory, managers'self-serving behavior refers to the managers obtaining their own interests at the expense of shareholders'interests. Self-serving behavior of managers is reflected in many aspects, for example, obtain perquisite by the use of authority (Burrough and Helyar, 1990); decide to excessive investment to acquire more resources or higher pay (Jensen, 1986); engage in special investment to keep their jobs not replaced by others (Shleifer and Vishny, 1989); take more consideration to their own interests when their company face takeover threat (Hartzell et al., 2004), etc. At present, how to effectively prevent and constraint managers'self-serving behavior have become important issues to be solved in the field of corporate governance, property rights system and the financial markets reform in emerging markets.Despite improving the property rights protection system, optimizing equity structure and other measures help to protect the interests of investors, however, studies have shown that, as an capacity affecting organizational behavior and organizational output, power distribution within the enterprise will have an important role in the enterprises'governance arrangements and financial decision behavior, and increasingly become one of the burgeoning areas of corporate finance research. Based on the reality of China, since the SOEs'reform of decentralization and interest concessions in early 1990s, the entire state-owned enterprise reform process in essence is also the process of shaping and improving executive control rights continuously. Central or local governments gradually shift the decision-making power from the top down through the extension of the pyramid equity, making the actual power of corporate management having unprecedented strengthened. Therefore, in the context of SOEs'governance framework mainly characterized by administrative intervention of the operator-controlled, with executives having actual operating decision-making power as a starting point, studies on how executives'control rights influencing the incentive contract, corporate capital allocation, information disclosure or other corporate behavior have demonstrated important significance.Specifically, this paper includes of nine chapters, and the contents are listed below: Chapter 1 is introduction, which gives the motive, the object, the value, the content, the characteristics and the innovation of our research. The definition of key concepts involved in the paper is also given.Chapter 2 gives a theoretical review. In the first instance, as a logical basis for this doctoral dissertation, we briefly review the executive control rights and private benefit of control rights theory; then, from the perspective of executive compensation and executive turnover, we review the domestic and international research on the incentive contract; finally, we discuss and organize the research literature about executive compensation, executive turnover, corporate capital allocation and accounting information from the perspective of corporate governance and executives'self-interest motivation.Chapter 3 is the analysis of institutional background. Firstly, we discuss the path of state-owned enterprise reform and governance structure of the historical evolution; then, based on insider control, this chapter investigates the background of strengthening executive control rights and the logic mechanism of self-serving behavior motivated by rent seeking incentive. It provides the solid foundation for the following chapters. Chapter 4 is the empirical analysis on the executive control rights and compensation contract. Based on the data of state-owned companies, we find that:(1)The greater the control rights of SOEs'chief executives is, the higher compensation and more excess pay they can get not only, but also the wider pay gap between top management and ordinary staff; (2)Although chief executives'pay-performance sensitivity is sticky on the whole, those having both high control rights and political connection may consider lowering the stickiness based on political motives; (3)Further studies show that upgrading the administrative level and improving the institutional environment can inhibit the excess pay snatching to some extent, but it can not effectively constrain the expansion of the pay gap.Chapter 5 is the empirical analysis on the executive control rights and executive changes. On the basis of the previous chapter's empirical analysis, we find that:(1)Chief executive's turnover is negatively correlated with company performance on the whole, yet the enhanced executive control rights can reduce the possibility of being forcibly replaced due to the poor performance; (2)Chief executive's turnover remarkably improves the company's future performance. However, this promoting effect only appears after the turnover of chief executives owning weaker control rights, rather than those holding larger control rights; (3)Further studies show that upgrading the administrative level and improving the institutional environment can inhibit the rent-seeking behavior of SOEs'chief executives.Chapter 6 is the empirical analysis on the executive control rights and firm's capital allocation behavior. Based on the theoretical framework of"executive control and self-motivation——capital expansion——the formation of enterprise risk", we find that: (1)Executives'control rights have a remarkably positive correlation with over-investment and diversification expansion; (2)The degree of correlation is greater when the firm has sufficient cash flow; (3)Further results based on Simultaneous Equations Model show that diversification expansion strategy implemented by executives holding larger control rights will increase firm's possibility of falling into financial distress.Chapter 7 is the empirical analysis on the executive control rights and accounting information transparency. Transparency is an integrated concept of many information content and information characteristic. In order to cover up their grabbing behavior of the self-interest, executives have motivation to manipulate the company's true information by the accounting choice behavior. This chapter find that: (1)The enhanced executives'control rights can reduce the transparency of accounting information; (2)External audit having high quality can improve the company's accounting information transparency; (3)Further studies show that the enhanced executives'control rights can weaken the positive correlativity between external audit and the company's accounting information transparency.Chapter 8 is policy recommendation. According to the above discussion, this part put forward some purpose-aimed suggestions concerning to the problems in corporate governance practices of state owned listed companies.Chapter 9 is research summary and prospects for future research. This part discusses the shortcomings of this paper and shows the directions of study in the future.