Empirical Research On The Influence Of Executive Compensation On Corporate Investment Behavior

In recent years, the executive compensation of Chinese Listed Companies has increased rapidly. In contrast with that, the enterprise performance has grown slowly. Some enterprise performance has even grown negatively. The opponent increase of the executive compensation has attracted widespread attention in academic circles. However, a great quantity of theoretical and empirical researches has not made a unified conclusion. Considering the influence of executive compensation on enterprise performance needs a medium, this paper investigates the effectiveness of managerial incentives of Chinese Listed Companies from the view of investment and provides some theoretical basis and empirical evidence for how to improve the compensation mechanism and increase the efficiency of investment in Chinese Listed Companies.This paper analyzes the compensation system in China by using principal-agent theory and enterprise contract theory. Then, using the data from 2005 to 2007 in stock markets of Shanghai and Shenzhen, the paper studies the influence of executive compensation on corporate investment behavior. The empirical study shows that there is a negative correlation between executive compensation and over-investment. It indicates that the executive choose to save the resources in company and maximize the investment when the compensation contract is unable to compensate the management ability and encourage the executive to make great efforts. The purpose of over-investment is to consolidate their position and power, build corporate empire so as to make up for disparity in compensation. A perfect compensation contract should be able to coordinate the management interests with shareholders'interests, externalize the private benefits and inhibit the impulse of over-investment. Moreover, the empirical result also demonstrates the validity of free cash flow hypothesis and debt financing governance effect on over-investment. Finally, based on the analysis of theoretical and empirical results, combining with the existing specific issues of listed companies in China, this paper puts forward some relative suggestions such as improving the instituting mechanism of the executive compensation and constituting the relative supervising mechanism.