The Executive Compensation Incentive And The Non-efficient Investment Of The Listed Company

Many researches have discovered that there are serious agence problem in the listed company in our country. An aspect of the problems is the non-efficient investment, which includes the over-investment and under-investment. Many researches proved that there are more under-investment than over-investment in the listed companies. Both of the two non-infficiencys will do harm to the performance and value of company, the owner's fortune. What is the cause of non-fficient investment? How does the incentive system affect the non-efficient investment? This research tries to answer these questions by demonstration.We use the data of the A-share company between 2004 and 2006 as the samples. Firstly, we set up an investment model, then make regression between the actual investment and the expected one. The regression residual will be sorted as over-investment and under-investment by the sign. Then we do regression between the PPS (Pay-Performance Sensitivity) and over-investment or under-investment. The PPS indicates the intensity of the incentive. The conclusion is that the relation of PPS and investment is negative if the PPS is under the optional level, and it is positive if PPS is higher than the optional level. And the financial risk is netative for the investment.The research indicates that the low PPS results in bad incentive effect, but it does not mean the higher the better too. The invalidation of the pay incentive brings the non-efficiency investment and the agency problem. To design a better incentive system will be helpful to solve the non-efficient investment and the agency cost.The inovation is using PPS as the variable of incentive intensity,and researching the relation between PPS and the non-efficient investment.We try to find more evidence of the non-efficient investment.