The Impact Of Financial Connection On Private Enterprise Executive Compensation

Based on China’s special national conditions,most of the relatively scarce financial resources flow to state-owned enterprises.Under the existing financial system,private enterprises,especially private enterprises that are not supported by industrial policies,is difficult to obtain effective external financing through formal finance.Therefore,financial connection has played a significant role in improving the financing difficulties of private enterprises as an important informal system in China under special national conditions.But the establishment of financial connection may require higher costs,such as offering higher compensation for financial background executives.Therefore,the establishment of financial connection by private enterprises is likely to affect their own executive compensation.In this context,it is of great significance to study how financial connection affect the executive compensation of private enterprises and its impact mechanisms.Based on the full study of domestic and foreign literatures,this paper conducts research from both theoretical and empirical perspectives.On theoretical perspective,based on Optimal Salary Contract Theory and Anchoring Effect Theory,this paper thinks that financial association can improve the executive compensation of private enterprises,but there may be two different ways of the influence.Subsequently,this paper uses the data of China’s private companies from 2010 to 2016,and divides the sample into enterprises that are supported by industrial policies support and those that are not supported by industrial policies,and empirically verifies the financial relationship to executive compensation from the perspective of industrial policy and test its conduction path.The empirical results show that:(1)Whether it is an industry supported by industrial policies,financial connection can significantly improve the salary of private enterprises.(2)For enterprises that are not supported by industrial policies,the excessive salary of executives caused by financial connection will help to improve the future performance of enterprises;and for enterprises that are supported by industrial policies,the excessive salary of executives caused by financial connection will damage the future performance of the enterprise;further,for enterprises that are not supported by industrial policies,the impact of financial connection on executive compensation is more to bring value to enterprises through mitigating financing constraints;It is said that the impact of financial connection on executive compensation is more due to the effect of the contract reference point.In response to the empirical conclusions,this paper proposes the followingpolicy recommendations: First,the government should optimize the allocation of social resources,improve the capital market and credit market construction,and strengthen the information exchange between financial institutions and enterprises.Second,for private enterprises in China,we should fully understand the economic consequences of financial connection,optimize the establishment of compensation systems,and strengthen corporate governance.