A Study On Diversification’s Influence On The Executives’ Perquisites

Diversification is commonly used as a development strategy of the modern business organizations and the problem of whether diversification is discount or premium has been the focus of academic debate. In the special background of our pay system, perquisites served as a recessive incentive contract and have occupied an increasingly large proportion in executives’ pay system. And also, executives tremendous amount of perquisites have always been concerned. So in the diversified firms, could the executives’perquisites play an effective incentive role? Perquisites is the symbol of status, will corporate executives grab more perquisites to realize the maximum of their own utility through diversification? What is the difference between related and unrelated diversified firms? If executives seek more perquisites through diversification, what kind of corporate governance mechanism can play an effective inhibition? This paper will make theoretical analysis and empirical study of the relationship between diversification and executives’perquisites, explore the way how diversification influence perquisites, in order to make further understanding of executives’ motive of diversification.This paper reviews the agency theory and the relationship among perquisites、 diversification and agency theory. And also analyze diversification’s influence mechanism on perquisites. On this basis, the paper selects1628listed companies from2009to2011as samples, and empirically analyses the relationship between diversification and executives perquisites.First, this paper examines the overall degree of diversification’s influence on executives’ perquisites. Study finds that the increase of overall degree can make executives consume more perquisites while it makes the corporate performance worse. This outcome proofs the diversified agency theory.Secondly, the paper examines the differences in influencing the perquisites between related and unrelated diversified firms. This study finds that the amount of perquisites in unrelated firms is significantly higher than related firms. With the unrelated diversification degree deepening, the corporate performance become worse and worse, but the executives’ perquisites become more and more. At the same time, the degree of related diversification makes no significant positive correlation on the corporate performance. These outcomes prove that the unrelated diversification is a way of executives to pursue more perquisites.Then, based on the foregoing findings, this paper examines the effectiveness of corporate governance mechanisms on restrain the executives’behavior of seeking more perquisites through unrelated diversification. This paper firstly tests three corporate governance mechanisms’ impact on the relationship between unrelated diversification and executives’perquisites which includes the ownership balancing and the independence of the Board and Managerial ownership. The empirical study finds that the independence of the Board and Managerial ownership will weaken the positive correlation between unrelated diversification and executives’perquisites. But the ownership balancing has no influence on the relationship of unrelated diversification and executives’ perquisites. On this basis, the paper constructs a comprehensive index of corporate governance, and empirical study finds that the higher the corporate governance index, the more weaken positive relationship between unrelated diversification and executives’ perquisites.Finally, this paper sums up the conclusions of the aforementioned studies. Then, this paper makes recommendations and countermeasures and points out the direction of future research.