The Relationship Between ManagementIncentives And Business Performances Based On Internal Capital Market Efficiency

In recent years, with the diversified wave sweeping through the world, Chineseenterprises also let the business to diversify. Internal capital market (ICM) is playingmore and more important role because of the great development in diversified groups.To be the alternative arrangements of external capital market, the purpose of it isimproving the efficiency of capital allocation. Now, more and more researchers in thefield of resource allocation have paid a close attention to internal capital market. Theproblems in corporation governance leads to the efficiency of ICM are low.Reasonable incentive design (including the CEO incentive and department manager’sincentive), is an important way to improve the efficiency of ICM. Enterprise operatingperformance is obvious indicators to the results. Therefore, this paper put internalcapital market as a starting point, and researched the relationship betweenmanagement incentive, internal capital market efficiency and the enterpriseperformance by testing175samples in2010.Based the collection on the2009and2010divisional report data, we usedadjustment Profit sensitive coefficient (Adjusted Profit-Sensitivity, APS) improvedmodel to measure internal capital market efficiency. At last, we test the relationshipbetween the variables by using correlation analysis and regression analysis method.Through empirical research, we can concluded that：(1) The efficiency of internalcapital market has significantly positive influence to business performance;(2) in theeffective internal capital market; the management equity incentives have a positiveimpact to efficiency of internal capital market. But the headquarters salary incentivehas no significant influence;(3) in the effective internal capital market, CEO equityincentives have a positive impact to efficiency of internal capital market. But CEOsalary incentive has no significant influence;(4) both salary incentive and equityincentive in division manager have no significant influence;(5) when the internalmanagement level is higher, the influences management incentives to enterpriseoperating performance are much higher than the influences in the low company.