Study On The Effect Of Managerial Power On The Corporations' Financial Decisions

Corporation Governance,which is an essential characteristic of modern corporate system,plays an important role in corporation development.With separation of ownership and management rights,agent conflicts between shareholders and managers became an important issue of corporation governance.In recent years,insider controlling problem was serious in capital market,with excess managerial power,the resultant decision defects caused heavy losses for corporations.This phenomenon has attracted increasing attention of researchers.Previous researches tended to focus on how managerial power influences executive pay while paying scant attention to relationship between managerial power and corporation financial decisions.Actually,executive pay is just a small part of fields that relate to managerial power effectiveness.Financial decisions involve fundamental interest allocation which is an important object of managerial power.As is stated above,we set three research objectives.Firstly,we studied the relationship between managerial power and corporation financial decisions.Secondly,we investigated the relationship between corporation financial decisions and corporate value.And finanlly,we studied whether managerial power has effect on the relationship between corporation financial decisions and corporate value.The three objectives constitute basic logic chain for how managerial power can make influences on financial decisions,and how these influences affect corporate value,thus offering decision-making references for stakeholders to regulate and oversee managerial power.Based on comprehensive related literature review at home and abroad,according to development history of China Capital Market and governance characteristics of Chinese listed corporations,this paper focused on chairman's power,defining managerial power by Structure Power.Ownership Power.Expert Power and Prestige Power,measuring investing,financing,allocating and cash flow management decisions by diversification,financing scale,cash dividend and cash holding.By researching listed firms from 2008 to 2014 in China Capital Market from CSMAR database and conducting empirical studies including theoretical exploration,descriptive statistics,panel data model,endogenous tests and robust tests,we drew the following conclusions:(1)Managerial power influences corporation financial decisions,such as corporate's diversification,financing scale and cash dividend.Managers' preferences for financial decisions were turned into reality by managerial power.With the increase of the managerial power,the companies come to have more diversified investing decisions,larger financing scale and more likely to distributing cash dividends.We do not find evidence to support that managerial power influences the magnitude of cash dividends and cash holding.(2)Corporate's financial decisions,such as financing scale and cash dividend,have significant effects on corporate value.With the increase of the corporate's total financing scale,the degree of deviation from optimal capital structure grows,and the fund for inefficient investment and managerial agency behavior increases,these bring damages to corporate value.The modest increase of cash holding can help to take precautions against cash shortage,so as to increase corporate value.We do not find evidence to support that diversification and cash dividend influence corporate value.(3)Managerial power has regulating effect on the relationship between financial decisions and corporate value,such as financing scale,cash dividend and cash holding.Between total financing scale and corporate value,equity financing scale and corporate value,cash dividend tendency and corporate value,cash holding and corporate value,this paper reveals that managerial power have significant effects on the above relation.This paper does not find the significant regulating effect between corporate diversification,cash dividends intensity and corporate value.The practical value of this paper is offering policy proposals for stakeholders to regulate managerial power operation.By verifying power concentration affects financial decisions,we propose that shareholders should actively concern about managerial power allocation and establish effective restraint mechanism,and we also suggest that creditors and shareholders should pay enough attention to corporation governance,especially the allocation of managerial power,when signing debt contracts,or deciding to invest.Governments in charge of security market should also pay attention to managerial power allocation to improve listed corporations' governance level and efficiency.