Internal Control Weakness,Product Market Competition And Executive Pay Performance Sensitivity

The sensitivity of executive pay performance has always been an important research field in the academic and practical circles.According Forum's theory of expectations,executive pay should be closely linked with the company's performance.With the change of executive incentive style,not entirely the executive pay of listed company is decided by the company performance,some executive pay even was inverted to the performance of company,it may reflect the irrationality of executive pay.So what cause the chaos of salary in reality? By reading a lot of literature about executive pay,we found that the previous research was mainly to analyze from the perspective of corporate governance,which includes the factors of internal control weakness on executive pay performance sensitivity.In fact,the Ministry of Finance,the Audit Commission,the CBRC,the CIRC and the CRSC jointly issued the "basic norms of internal control" in 2008,then jointly issued "enterprise internal control supporting guidelines" in 2012,which required the listed companies on the main board must implement the internal control system of norms,it means that the small board and the gem enterprise internal control construction is still at a low level of external supervision.By reading a lot of literature,we can also found that most of the literature only focus on the effect of internal control deficiencies on executive pay performance sensitivity,little literature connect the internal control deficiencies with the external governance environment.Adams' s study found that competition can reduce the asymmetry of information,by comparing the company themselves with competitors in the competitive environment,shareholders can get more information which can not be obtained from the management.At the same time,the increasing of competition degree will increase the possibility of bankruptcy liquidation,virtually increased the pressure on the management of the company,which could stimulate management to operate the company better.Therefore,this paper will break through the previous research category,study the executive pay and its sensitivity combined the company's internal governance with external product market competition.Based on the above research background,this paper takes the small board and GEM listed companies from 2012 to 2015 as the research object,using the methods of literature analysis and empirical test to investigate the existence of executive pay performance sensitivity,then analyzes the important factors that affect the executive pay performance sensitivity.Whether the performance of the company is an important factor in determining executive pay? Whether internal control deficiencies will weaken executive pay performance sensitivity? When the enterprise is in the fierce market competition environment,whether the negative effect of the internal control defect on executive pay performance will be reduced? This paper reviews the research status at home and abroad firstly,and summarizes the theories related with the internal control weakness,product market competition and pay performance sensitivity,then propose our hypothesis combined with the related theory including principal-agent theory,asymmetric information theory,optimal salary theory,information sufficient hypothesis and bankruptcy liquidation hypothesis.Finally,this paper puts forward the hypothesis empirical to test and analysis,draw the following conclusions in the end:(1)the performance of listed companies is positively related with executive pay which means the pay performance sensitivity exists;(2)internal control deficiencies will weaken the pay performance sensitivity;(3)compared with the enterprises which in the high degree product market competition enviorment,the enterprises in the low degree product market competition enviorment whose internal control deficiencies will weaken the pay performance sensitivity more seriously.According to these conclusions,this paper puts forward relevant suggestions:(1)the listed companies should strengthen the construction of enterprise internal audit,improve the level of internal control;(2)make the construction of internal control as an important factor in the assessment of the level of executive pay;(3)we should further improve the market competition mechanism and cultivate a good competitive environment.