| Investment is one of the most important financial decisions of listed companies.From a micro perspective,investment is an important foundation for future cash flow growth and the company’s growth driver,and it is also an important guarantee for the company to achieve continuous increase in value.From a macro perspective,investment is also an important force to promote the rapid development of China’s economy.China’s listed companies have always taken "bigger and stronger" as the main goal of company development.In recent years,despite the impact of the global macroeconomic situation,many listed companies have faced the difficulties of tightening the capital chain and difficulties in bank financing.However,the momentum of listed companies ’expansion has not slowed down,and even more and more companies are expanding their own industrial chains scale,choosing to implement a diversified business strategy,and many companies have even accelerated their global network deployment.Reports on the "overseas mergers and acquisitions tide" and "snake swarm" are common.However,in reality,there are a large number of inefficient investment behaviors,which have brought about negative effects that cannot be ignored.From a micro-level perspective,executives are more enthusiastic about winning larger investment projects to rapidly expand the company’s scale,and therefore ignore reasonable assessments of project risks,future cash flows,and investment payback periods,leading to company management and financial support failure to meet the project’s late expansion pace forced the company to be exposed to huge financial and operating risks.Executives are the main decision makers of the company’s resource allocation,and the compensation contract has always been an incentive mechanism used to solve the agency problem between executives and shareholders.However,it is clear that the compensation contract of listed companies in China has not effectively solved the problem.The reason is that the company’s inefficient investment is extremely serious.So,how to design the executive compensation incentive mechanism of listed companies in China so that they can effectively exert their corporate governance effects? The solution to the above problems may still be in the executive team,but not all of the executive team,but the "key minority" among them.In the enterprise,the CEO and some executives in other key positions in the senior management team(hereinafter referred to as key subordinate executives)constitute a "key minority".This small group in the senior management team plays a decisive role in the company’s strategic decisions,and each key subordinate executive plays the dual role of decision maker and executor.Unlike ordinary executives,key subordinate executives are highly competitive potential candidates who may become successor CEOs,and their behavioral decisions should be different from those of other senior executives.The salary gap is an important part of the salary incentive mechanism,but there is little literature to study the behavioral decisions of the CEO and key subordinate executives from the perspective of the salary gap between the CEO and the key subordinate executives.In the context of the high-quality development of China’s economy,this article explores how the compensation structure design for "key minorities" can improve the investment efficiency of enterprises from the perspective of the pay gap between key executives composed of CEO and key subordinates.First,analyze the behavior of key executives under the incentive of pay gap,clarify the specific impact of key executive pay gap on corporate capital investment,the mechanism of action and economic consequences,and build a theoretical prototype.Then,embed this prototype into China’s capital market environment and institutional background,sort out related research propositions,establish hypotheses based on the research propositions,collect research samples,and establish test models.Finally,the empirical test is conducted on the sample of China’s A-share non-financial listed companies from 2006 to 2017,and concrete research conclusions are finally formed.On the whole,the research conclusions obtained from the theoretical analysis and empirical research in this paper mainly include the following four aspects.First,the impact of key executive compensation gap on corporate capital investment efficiency.Under other conditions,the pay gap of key executives,that is,the pay gap between CEO and key subordinate executives,can motivate key executives to make and execute investment decisions from the long-term value of the enterprise.Specifically,on the one hand,the key executive compensation gap has strengthened mutual supervision among key executives;on the other hand,the key executive compensation gap has prompted key executives to work harder.Therefore,the larger the salary gap for key executives,the higher the investment efficiency of listed companies.Further research finds that the key executive compensation gap is mainly to improve the investment efficiency of listed companies by suppressing over-investment,and the effect on under-investment is not obvious.This is the urge for corporate executives to overinvest,especially CEOs,and it is likely to consolidate their position through the construction of a “empire of managers”.Therefore,key subordinate executives will naturally strengthen their oversight of over-investment,thereby improving investment efficiency.By comparing the effect of the salary gap between key executives and the salary gap within the entire executive team on investment efficiency,it is further confirmed that key executives have played a "critical" role in corporate investment decisions.Under different conditions,the role of key executive compensation gap will be different.When the salaries of key executives are lower than the average salary of key executives in the industry,the key executive salary gap has a significant effect on improving investment efficiency.However,when the compensation of key subordinate executives is higher than the average salary of key subordinate executives in the industry,the gap of key executive compensation does not have a significant effect on improving investment efficiency.Market competition is an external governance mechanism,and the key executive compensation gap is an internal incentive mechanism.When these two governance mechanisms exist at the same time,there is a substitution effect on the investment efficiency of the two.That is,when the external market is highly competitive,the key executive compensation gap cannot significantly improve the investment efficiency of the company.Through robustness tests,we come to the conclusions basically in line with those of primary tests.Second,from the perspective of CEO change,we examine the mechanism of the key executive pay gap affecting corporate investment efficiency.Under other conditions,the worse the company’s performance,the more likely it is that the CEO will be changed,and the key executive compensation gap will promote the CEO change,but the effect is not obvious.However,the crossover between company performance and key executive compensation gap is significantly negatively related to CEO change.That is to say,when the company’s performance is poor,the supervisory role of key subordinate executives on the CEO can be exerted more effectively under the incentive of the pay gap,and it is more likely that the poor-performing CEO is replaced.Further research find that the supervisory role of key subordinate executives on the CEO is affected not only by their willingness to supervise,but also by their supervisory ability.When there are board members among the key subordinate executives,the key subordinate executives have a certain right to speak at the board level.Encouraged by the salary gap with the CEO,key subordinate executives are more motivated and capable to monitor the CEO.When the CEO’s operating performance during the tenure is poor,the probability of the CEO being replaced is greater.However,the CEO will also defend his poor operating performance during his tenure,and the impact of the external environment is one reason the CEO may seek.This is confirmed by the weak role of key executive compensation gaps in replacing poorly performing CEOs when economic policy uncertainty is high.In the company,the board of directors’ vertical supervision of the CEO and the key subordinate executives’ horizontal supervision of the CEO coexist,and these two supervision modes complement each other.Effective vertical supervision of the board by the board of directors can promote the role of key subordinate executives in supervising the CEO.Through robustness tests,we come to the conclusions basically in line with those of primary tests.Third,from the perspective of earnings management,we examine the mechanism of the key executive pay gap affecting corporate investment efficiency.Under other conditions,the pay gap of key executives,that is,the pay gap between the CEO and key subordinate executives,can motivate key subordinate executives to monitor the CEO and other key subordinate executives,to inhibit the CEO and other key executives’ earnings manipulation behaviors,thereby reducing the company’s accrual earnings management level and true earnings management level,and alleviating corporate information asymmetry.Further research finds that by comparing the impact of key executive compensation gaps and the internal compensation gap on earnings management,it confirms that key executives have played a "key" role in restraining earnings management of companies.In addition,other non-key executives within the executive team also play an important role in curbing the company’s true earnings management.External supervision and horizontal supervision of key executives have a substitution effect in reducing the level of corporate earnings management.Specifically,when a listed company is audited by the Big Four accounting firms,the horizontal supervision of key executives no longer plays a significant role in restraining the level of accrual earnings management.In terms of true earnings management,the horizontal supervision of key executives and external Supervision has a significant inhibitory effect.Internal control avoids opportunistic behaviors in which management seeks for self-interest by using aggressive accounting methods by strengthening checks and balances on management power.The key executive compensation gap is to improve financial reporting by improving the quality of internal control quality of earnings information.Therefore,the quality of internal control is the main path for key executive compensation gaps to affect earnings management.Through robustness tests,we come to the conclusions basically in line with those of primary tests.Fourth,from the perspective of corporate value,we examine the economic consequence of the key executive pay gap affecting corporate investment efficiency.Under other conditions,the larger the pay gap of key executives,the stronger the incentive and horizontal supervision effects,both the CEO and key subordinate executives will work harder and ultimately promote the company’s value.Further research find that how the incentive and supervision effects of key executive compensation gaps play out requires consideration of the age of key subordinate executives.When the key subordinate executives are relatively young as a whole,the incentive and supervision effects produced by the salary gap with the CEO are stronger,which is more conducive to increasing the value of the company.At the CEO level,whether the compensation gap for key executives has an incentive effect and a monitoring effect can increase the value of the company,the power of the CEO must also be considered.If the CEO has greater power,it is likely to curb the governance effect of the key executive compensation gap.That is,when the CEO has greater power,it is difficult for key executive compensation gaps to increase company value.Investment efficiency is closely related to the value of the company.The value effect analysis shows that the pay gap of key executives can increase the value of the company by improving investment efficiency.That is,an important economic consequence of the key executive compensation gap affecting investment efficiency is increased company value.Through robustness tests,we come to the conclusions basically in line with those of primary tests.To sum up,this paper analyzes the behavior of key executives ’performance in the incentives for pay gaps,and then deduces the governance effects of key executives’ pay gaps on corporate investment.Based on the listed companies in China,the mechanism and economic consequences of the three aspects,the use of empirical tests to conduct an in-depth analysis of this governance effect,with a view to enrich the senior management team theory at the key executive level,and expand research in the field of salary incentives.Specifically,the research significance of this article is reflected in the following three aspects: First,the CEO and the entire senior management team are usually the main body in corporate governance practice,but the "key minority" in the senior management team is easily overlooked.However,the core circle of this executive team is better able to achieve mutual monitoring and checks and balances of power.Therefore,this paper examines the important role played by the "key minority" in the executive team in corporate governance,enriches the research literature on the executive team,and provides theoretical support and empirical evidence for finding new breakthroughs in corporate governance practice.Second,this article studies the governance effect of key executive compensation gaps from the perspective of corporate investment,which helps to promote the deepening of compensation incentive theory.When can the pay gap be motivated and when can’t it be motivated? Under what circumstances can the pay gap be more motivating? This article studies the pay gap between key executives to help companies use the pay gap to improve corporate governance.The level indicates the future improvement direction.Third,the conflict of interest caused by the agency problem between the shareholders and the executives of the company is an important reason for the distortion of the company’s investment decisions.This paper examines the impact of key executive compensation gaps on the investment efficiency of enterprises and the mechanism and economic consequences.The inefficient investment problem caused by the conflict provides new ideas and promotes the high-quality development of listed companies in China. |
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