Managerial Power,Compensation Regulation And Diversification Investment

With the increasing degree of the world economic integration,other countries are having important impact on our economic.Many enterprises are also beginning to explore the diversification strategy by the international companies’ inspiration.However,China’s economy is in the transition stage of development,a number of enterprises through the way of acquisition,changeover and restructuring to be listed.Then the leader of the state-owned enterprises has become the management executive,which makes the manager has too much power.In that case,the manager has the ability and the motive to improve his own salary welfare by diversification investment.In recent years,the public has been discussing the social justice for managers’ salary growing too fast.From2002,to solve the problem of equitable income distribution,our government began to implement compensation regulation policy in the state-owned enterprises.The policy has limited the manager to raise his money compensation,and restrained the damage for the performance by invalid investment,in the other hand,it motivates those powerful managers to obtain other benefits from diversification investment.Specifically,the paper is divided into five parts:Ⅰ.Introduction.The background and significance of the researches on this topic are summarized and described,the research issues and methods are discussed,and possible innovations are discussed.Ⅱ.Literature Review of both abroad and domestic studies on managerial power.This part focus on the areas of managerial power,with the existing differences as clues,collates and analyzes the ideas,methods,conclusions,etc.of the existing literatures.There are three aspects:(1)the relationship between managerial power and compensation;(2)the relationship between managerial power and performance;(3)differences in conclusions of the studies,and finally,a briefly review of the overall summary.Ⅲ.The theoretical analysis and assumptions.This chapter lays the theoretical foundation for assumptions,therefore,it gives a brief review of the background of agency theory,optimal contract theory,and managerial power theory.Secondly,it explains and analyzes the impacts of these theories and presents three assumptions.IV.The empirical study design,hypothesis testing and results analysis.This chapter starts from the sample selection of empirical study and introduces the data processing,model selection,variable definitions and other evidence.The overall samples are divided according to the degree of the managerial power.The empirical analysis and comparative studies are conducted.Further,a detailed analysis of the empirical results and the reasons are made.V.Conclusions and policy recommendations.To summarize the whole paper,this chapter gives a brief summary of the literature review,theoretical analysis and empirical analysis.To improve the corporate finance constraint as the core,a number of positive policy proposals are brought up from the aspects of the government,the enterprises themselves,markets,regulators,etc.This article,as the managerial power the breakthrough point,tries to figure out:whether the improvement of executive’s money compensation is the motivation of the diversification;whether the diversification is effected by executives’ compensation regulation;and whether the diversification has an effect on firm-performance under executives’compensation regulation.By a series of studying and analyzing,we get the following conclusions:(1)the motivation of diversification investment is to improve executives themselves’ compensation.The executives will take actions to get other benefits from power under executives’compensation regulation.(2)the diversification investment itself is neutral,and will not impair the performance,it is the managerial power that results in the invalid investment.So to test the validity of executives’ compensation regulation,the managerial power’s intermediary role must be considered.Only effectively take measures to control the managerial power at a reasonable scope,the executives’ compensation regulation can fully play its role in improving firm-performance.Comparing with other researches,the innovations of this thesis are:first,this thesis study the impact from managers abusing their power to the diversification investment along with Chinese enterprises’ reality,and on the basis of western academic achievement;second,the former papers focus on the relationship between the diversification investment and the firm-performance.This article discusses the relationship between executives’ compensation regulation and diversification investment,furthermore their combined result to the firm-performance,distinguishing the diversification investment from different business industries it involved.We try to explain the managers’ motivation of diversification investment,and find out the better way to improve the firm-performance by carrying out the executives’compensation regulation.This thesis is helpful to test the validity of the executives’ compensation regulation,supply suggestions for future policies’improvement and implement,and provide empirical evidence for further improving our corporate governance structure,better solving the agency problem.Although this thesis obtained the expected results,but there are still some limitations.Because there is no agreement in research about the indicators of managerial power,the diversification investment,or the executives’ compensation regulation,this paper can only to benefit from the measure of other academic research method.In addition,as for measuring the diversification indicator,while the paper applicated herfindal index calculation that the most scholars used.However,the basic data is from the financial statements disclosured by corporate,and there is still some subjectivity in the data processing.All these may cause a certain gap with the actual situation.We expect to do deeper and further study in the future.