Managerial Power, Compensation Dispersion And Firm Value

The separation of ownership and management lead to the agency conflictbetween shareholders and managers in modern enterprise (Jensen and Meckling,1976). As an important corporate governance mechanism to solve the problem ofprincipal-agent problem, the effectiveness of compensation contracts depends onwhether the design of management compensation has the corresponding incentiveeffect, and then influence the degree of effort of managers and firm value.As the compensation dispersion is an important content of incentive structure,whether the setting of compensation dispersion has the corresponding incentive effectdirectly determine the effectiveness of compensation policy formulation. Most of theexisting literature about the relationship between compensation dispersion and thefirm value choose the company internal compensation dispersion, and have notreached consensus conclusion till now. As self-interest agent, managers not only willmake a comparison between their own compensation with internal staff, but also willmake a comparison between their own compensation and peer compensation, and theexternal compensation dispersion is still lack of research among the existing literature.So, this paper uses the most optimal contract theory and principal-agent theory as thetheoretical basis, combines the standard research methods and empirical researchmethod, based on the managerial power theory, make a system research of therelationship between compensation dispersion and firm value from the two aspects ofinternal compensation dispersion and external compensation dispersion. In addition,in view of our emerging/transition system background, the state-owned property oflisted companies, the extent of marketization development of the region where thelisted companies is, and the industry competition which industries the listedcompanies belongs, all these are not only significant influence the incentive effect ofcompensation dispersion, but also further influence how the managerial powerinfluence the incentive effect of compensation dispersion, so our paper make a furtherresearch on managerial power, compensation dispersion and firm value combinedwith different equity properties, the marketization degree of different areas anddifferent industry competition degree.Specifically, this study can be divided into the following eight chapters:Chapter1is introduction. This chapter mainly introduces the researchbackground, significance, the content of the thesis and framework, the researchmethods and our innovation points, in addition, we make a definition of the relevantconcepts of this article.Chapter2gives the theoretical basis and applicability analysis of the relevanttheory. This chapter first describes the principal-agent theory, the optimal contracttheory and the managerial power theory, all these in this paper laid a theoreticalfoundation; Secondly, based on agency theory, contract theory, the inform of China’senterprise system and the evolution of the executive compensation incentive policy, we analyse the applicability of managerial power theory in China.Chapter3gives a literature review. This chapter is divided into three parts, thefirst part is a literature review about managerial power and compensation dispersion,and through the review we found the research starting point; The second part is therelated theory and literature review about the relationship between compensationdispersion and firm value；The third part is the literature review about managerialpower and the incentive effect of compensation dispersion, and then determine theresearch trend and research framework.Chapter4is the empirical analysis on managerial power, internal compensationdispersion and firm value. This chapter we make an empirical research on the valueincentive effect of internal compensation dispersion and how managerial powerinfluences the value incentive effect of internal compensation dispersion. The resultsfind that, the internal compensation dispersion between managers and staff is positivewith firm value. The compensation dispersion has positive incentive effect, whichsupports the tournament theory, but the managerial power will curb the incentiveeffect of compensation dispersion. Besides, we study about the influence mechanismbehind the relationships we have studied, and we find that, the mechanisms howmanagerial power and internal compensation dispersion influence firm value may bethat the higher internal compensation dispersion can raise the pay-performancesensitivity, but the managerial power will curb this effect.Chapter5is the empirical analysis on managerial power, external compensationdispersion and firm value. This chapter we make an empirical research on the valueincentive effect of external compensation dispersion and how managerial powerinfluences the value incentive effect of external compensation dispersion. The resultsfind that, the external compensation dispersion of Chinese listed companies is positivewith firm value. The external compensation dispersion has positive incentive effect,but managerial power will curb the incentive effect of external compensationdispersion. We make a further study about the influence mechanism behind therelationships we have studied, and we find that, the mechanisms how managerialpower and external compensation dispersion influence firm value may be that thehigher external compensation dispersion can curb the level of executive perquisites,and the executive perquisites destroys firm value. But managerial power weakens theinhibitory effect of external compensation dispersion to executive perquisites.Chapter6is the empirical analysis on managerial power, compensationdispersion and firm value based on different nature of property. This chapter we makean empirical examination on managerial power, compensation dispersion and firmvalue based on different nature of property from the internal compensation dispersionand external compensation dispersion respectively. we find that the state-ownednature not only curb the incentive effect of compensation dispersion, but alsostrengthen the inhibitory effect of managerial power to the incentive effect ofcompensation dispersion.Chapter7is the empirical analysis on managerial power, compensationdispersion and firm value based on different institutional environment. This chapter we make an empirical examination on managerial power, compensation dispersionand firm value based on different institutional environment from the internalcompensation dispersion and external compensation dispersion respectively. Theresults find that, the marketization of the region where the listed companies is notonly influence the incentive effect of compensation dispersion, but also furtherinfluence the relationship between the managerial power and the incentive effect ofcompensation dispersion, the marketization strengthen the positive incentive effect ofcompensation dispersion, besides the marketization weaken the inhibitory effect ofmanagerial power to the positive incentive effect of compensation dispersion; Thedifferent degree of industry competition also lead to different institutionalenvironment, and then influence the relationship of managerial power, compensationdispersion and firm value, compared to the companies which belong to a competitiveindustry, the incentive effect of compensation dispersion is weaker and the inhibitoryeffect of managerial power to the incentive effect of compensation dispersion isstronger in listed companies which belong to a protected industry.Chapter8is the main conclusion and prospects for future research. According tothe above theory discussion and empirical analysis, this chapter pointed out thelimitations of this study and the future directions of the research. The first part is theresearch conclusions of the whole paper, the second part points out the limitations anddeficiency of this paper, and points out the future research direction.