Research Of Incentive For Senior Executives On The Effectiveness Of Internal Controls

As a tool to realizing the interests consistency of the owners and operators, executive incentive mechanism has been trusted by listed companies and been widely adopted. With the further development of state-owned enterprises’reform process, the executive incentive in state-owned enterprise is also gradually to the direction of marketization. According to Guiding Opinions on Further Reforming of State-owned Enterprises:Because China is in the early stage for reforming of state-owned enterprises, although the state-owned enterprise managers has been gradually introducing market system, executives who selected is by administrative appointment still occupy a large proportion of companies executives. Executives are responsible for the perfect corporate governance mechanism and establishing efficient internal control. As a result, the analysis of the effect of executive incentive mechanism on internal control effectiveness and comparing the influence from the effect of executive incentive mechanism to administrative executives and marketing manager on internal control effectiveness will provide feasibility reference for the reform of state-owned enterprises to design proper proportion between two types of senior management and implement reasonable and effective incentive mechanism.Based on the domestic and foreign literature about the executive incentive and the effectiveness of internal control, in the first place, this article discuss the influence of two classes of executive incentive mechanism of state-owned enterprises on the effectiveness of internal control in theory, and put forward the hypothesis of this article. After that we construct the regression model according to the prior research, and select a representative sample of executive incentive mechanism to empirically test the impact of effectiveness of internal control. Meanwhile, we empirically test the effects of two kinds of different political background of executive incentive by constructing cross-terms regression and grouping regression and make further analyzes on the impact of senior political strength. Finally, the conclusions of this study are put forward, in combination with the reality background of the reform of state-owned enterprises, we put forward feasible suggestion.In this paper, our study mainly arrival at the following conclusions:excess salary incentive indeed can promote internal control effectiveness in the state-owned listed companies, while equity incentive mainly reflects its negative effects in promoting the effectiveness of internal control in the present stage so that equity incentive has significant negative correlation relationship with the effectiveness of internal control; further study about the excess compensation found that the political relevance of executives can inhibit the promoting to the effectiveness of internal control and the stronger political executives, this inhibitory effect is more serious.The main innovation of this paper includes:First, this paper provides the comparison of two opposite mechanism of executive incentive to the effectiveness of internal control in theoretical. Combined with the particularity of state-owned enterprises, the paper choose the most appropriate theoretical foundation; Secondly, this study suggests that because the internal control is a key point of corporate governance, the role of the incumbent officials with administrative position are more important. Third, the paper added analysis of the political strength.