Executive Compensation,Managerial Power And Inefficient Investment

With the advance of China’s supply-side reform and the arrival of "Made in China 2025",the manufacturing industry,which occupies a large part of China’s national economy,is in a critical period.Manufacturing industry has a high proportion of fixed assets investment,and it is under pressure to transform and upgrade.Efficient investment is a very important task for manufacturing companies at this stage.As an important participant and decision-maker in enterprise investment behavior,executives’behavior and decision-making may directly affect the efficiency of enterprise investment,which in turn affect the improvement of enterprise value.However,due to the principal-agent problem,the interests of executives and shareholders may not be the same,and executives are likely to harm shareholders’ interests in order to obtain private interests.Although executive compensation is an important means to solve the principal-agent problem,higher executive compensation has been questioned by the public in recent years.Whether executive compensation is reduced to a means of rent-seeking or an effective incentive for executives to enhance corporate value is still worth exploring.As two important ways of executive compensation incentive,monetary compensation and equity incentives play a common role in company value,performance and investment efficiency.This paper studies the impact of monetary compensation and equity incentives on inefficient investment.At the same time,due to the existence of managerial power,managers may reduce the discourse power of the board of directors through power suppression,reduce their independence and supervision functions,and even use self-determined compensation to seek excessive compensation for themselves,so that the compensation contract loses its incentive effect,instead becomes a means for executives to seek personal benefits.This paper selects the manufacturing companies listed in China’s A-shares as the research object,and takes the 2011-2017 as the research interval.Through appropriate screening and processing,the sample observation value is finally obtained.Due to China’s special institutional background,state-owned enterprises are often subject to policy intervention when making investment decisions,and executives’ monetary compensation and equity incentives may also be subject to certain restrictions.Therefore,in this paper,the sample companies are divided into state-owned enterprises and non-state-owned enterprises according to the nature of property rights for verification.This paper argues that executive monetary compensation and equity incentives can inhibit the company’s inefficient investment behavior.However,in state-owned enterprises,executive monetary compensation has less inhibitory effect on inefficient investment,and equity incentives cannot significantly inhibit the inefficient investment behavior of executives.Combined with the managerial power theory,this paper concludes that when managerial power is large,it will weaken the restraining effect of executive monetary compensation and equity incentives on corporate inefficient investment.Similarly,in state-owned enterprises,managerial power has less effect on the suppression of inefficient investment by executive monetary compensation,and there is not even a significant correlation between equity incentives,managerial power and inefficient investment.In the case of extensibility testing,this paper divides inefficient investments into over-investment and under-investment.This paper finds that in both state-owned and non-state-owned enterprises,executive monetary compensation and equity incentives can inhibit over-investment,and managerial power will weaken the inhibitory effect of executive compensation incentives on over-investment.Only in the sample of total samples and non-state-owned enterprises,executive monetary compensation will curb inefficient investment,and managerial power will weaken the inhibitory effect of monetary compensation on under-investment.In all the samples,equity incentives can promote the under-investment behavior,and managerial power has no significant impact on the relationship between the two.