Research On The Effect Of Executive Compensation Incentives On The Cost Of Equity

The long-term development of an enterprise depends on the effective integration of funds.However,the most common and most prominent problem faced by Chinese enterprises is that finance is expensive — the cost of equity financing is high.Therefore,seeking an effective way to reduce the cost of equity financing is an urgent task for enterprises.Some studies have pointed out that executive compensation incentives can reduce the cost of equity financing to some extent.However,the research on the relationship between executive compensation incentives and equity financing costs at home and abroad is still at the initial stage,and no mature conclusions have been formed in the study.In theory,management's use of its power to control the pay contract will also affect the pay incentive effect.Therefore,in theory,whether executive compensation incentives can reduce the cost of equity financing and how management power affects the relationship between the two remain to be further studied.For practice,the research conclusions of these issues will provide important support and guidance for the cracking of the financed problem in our company.Therefore,based on the perspective of management power,this article selects the Shanghai-Shenzhen A-share listed companies from 2012 to 2016 as the research object,and empirically studies the impact of executive compensation incentives on the cost of equity financing.Specifically,executive compensation incentives are divided into absolute executive compensation and executive compensation gap.They discuss their impact on equity financing costs in depth,and further explore the impact of management power on the relationship between the two.Based on empirical test results make policy suggedtions.The conclusion of this study shows: Firstly,the absolute executive compensation is negatively related to the cost of equity financing.Increasing the absolute executive compensation can reduce the cost of equity financing to some extent.Secondly,the executive compensation gap is negatively related to the cost of equity financing.Within the current salary gap,the widening of executive pay gap will help reduce the cost of equity financing.Thirdly,the power of management weakens the effect of absolute compensation of senior executives on the cost reduction of equity financing.The greater the power of management,the more likely it will affect the formulation of compensation incentive contracts,which in turn will affect the absolute compensation incentive effect of senior executives.Finally,management power has weakened the effect of executive pay gaps on the reduction of equity financing costs.The greater the power of management,the more likely it is to seek more compensation,thus increasing the pay gap with other executives,and ultimately influencing the executive compensation gap effect.On this basis,the paper further proposes that listed companies in China need to improve the compensation disclosure system for senior executives,optimize the compensation structure of senior executives,reasonably arrange the pay gaps among the executives,pay attention to the power of management and strengthen corporate governance to achieve the goal of reducing the cost of equity financing and maximizing the value of the company.