Research On The Influence Of Institutional Investors On Management Compensation

In 1932, Berle and Means proposed, in The Modern Corporation and Private Property, that modern corporate governance derives from the separation between ownership and control power, and the separation makes managers have the opportunity to act according to their own interests rather than shareholders', which leads to the conflict of interests between shareholders and managers, namely Principal-Agent problem. How to deal with the corporate governance problems caused by Principal-Agent has always been a hot and unsolved topic both in theory and practice. Recently, the emergence of institutional investors let us see the hope to solve this problem. Institutional investors as one owner of the corporate have professional financial team, rational investment behavior and the cost advantage brought by scale economies, and their growth and development will improve the structure of the investors in the securities market, playing a role in stabilizing the market, trading activity, improving the corporate governance of listed companies. As a result, institutional investors should not only participate in corporate governance, but also should become the backbone of corporate governance.For institutional investors, a main way of participating in corporate governance is to take an active part in the management performance evaluation and compensation system design. Under the market economy condition, in order to guarantee the management has a strong sense of responsibility as well as a positive work attitude, it is necessary to establish a scientific and rational system of management compensation motivating management effectively and guiding them step by step to act in the interests of stakeholders, only in this way, is it possible to resolve corporate governance problems triggered by Principal-Agent. Based on the above reasons, this topic was chose and some specific work that has been done is as follows: Constructing a game model of institutional investors and management compensation; Deeply analyzing the Influence of Institutional Investors on management compensation from the perspective of game theory; Considering China's unique economic environment, the method of empirical research was used to investigate the influence of the institutional investors on management compensation on the basis of normative research.This paper consists of five chapters. First of all, on the basis of introduction in the first chapter, the second chapter discusses the basic theories relating to institutional investors and management compensation, and explains the logical relationship between them. Then, the third chapter gives a systematical analysis on motivation, effect and system of the influence of institutional Investors on management compensation, and constructs a game model between institutional investors and management compensation. Further, Chapter four analyses the influence of institutional investors on management compensation with the date collecting from the annual report of 4123 listed companies from 2004 to 2006, with the method of Multiple Regression Analyses. Finally, Chapter Five gives conclusions and suggestions, and also points out the limits of the paper.