Executive Pay Limit?Agency Cost And Company Performance

During the forty years of reform and opening up,with the sustained and stable development of China's economy,state-owned enterprises,as the driving force of economic development,have always had an important position.,but in recent years the high salaries of executives in state-owned enterprises have aroused strong social concern,some state-owned enterprises have had long-term problems such as unreasonable salary structure and imperfect salary management system.In addition,the executive compensation of some state-owned enterprises is seriously inconsistent with the company's operating performance.These problems have not only damaged the image of the core functions of state-owned enterprises,but also caused income contradiction and social distribution inequality.This paper takes the " central management enterprise salary system reform "("pay limit order")implemented on January 1,2015 as an opportunity to study the influence of the salary limit for executives of state-owned enterprises on corporate performance.Corporate performance is measured by two indicators,tobin Q and the excess return of the stock market,and corporate market performance is observed from the perspective of the capital market.By selecting the annual data of listed companies from 2012 to 2017,using the difference in difference model(DID)for emperial test,state-owned enterprises as the treated group,while non-state-owned enterprises as the control group,it was found that the "pay limit order" policy had a significant negative impact on the performance of listed companies.In order to explore the mechanism behind the decline in corporate performance,according to the optimal contract theory,this paper selects the agency cost as an intermediate variable to study the relationship between the executive pay limit,agency cost and corporate performance.The results show that compensation regulation increases the agency cost,which leads to the decrease of corporate performance.This paper further studies the time effect of "pay limit order" on enterprise performance and finds that,with the passage of time,the policy implementation has a more significant negative impact on enterprise performance.This paper also finds that the influence of "pay limit order" on the performance of different types of enterprises is heterogeneous.The performance of competitive enterprises,low-paid enterprises and small-scale enterprises decreases more than monopoly enterprises,high-paid enterprises and large-scale enterprises.Therefore,it is proposed that state-owned enterprises should establish a compensation system for executives in line with their corporate characteristics,promote the market-oriented reform of the compensation system for heads of state-owned enterprises,and achive the maximization of enterprise value.