Research On The Impact Of Executive Incentives On Firm Investment Efficiency

In recent years,China's economy and investment have been increasing rapidly.However,inefficient investment is still obvious behind growing investment of macro-economy.China's economy is in a critical period of transformation.So it has been impossible to promote the transformation and upgrading of the economic growth model simply by raising investment rate.Investment efficiency demonstrates a company's value.According to the principal-agent theory and information economics,if there are separate powers in a modern enterprise,there are conflicts between the interest of the managers and that of the owner.The senior managers who act as agents are in information superiority.They may take personal interest as priority when invest,causing moral hazard and adverse selection and leading to inefficient investment.By encouraging executives,we can integrate the interests of senior executives and shareholders to improve investment efficiency and maximize company value.In this thesis,executive incentive is classified into the incentive of salary,equity,promotion and on-the-job expense.Concerning these four incentive types,further studies and quantifications are respectively conducted.Salary includes a fixed salary,performance pay and bonuses;on-the-job expense includes travel expenses and office expenses;equity incentives clarify stock options and restricted stocks;promotion incentives are quantified with the gap between the average salary of executives and non-executives.On the other hand,in this paper,Richardson model is also applied to calculate the investment efficiency of listed companies in China's manufacturing industry in recent five years.According to the margin between new investment and model fitted value,inefficient investment is conducted and can be classified into over-investment and under-investment.In the light of theory and reality,the author has analyzed the mechanism of detailed and quantified incentive methods' impact on investment efficiency.Hypotheses and models are applied to study different incentive methods' impact on investment efficiency.In this thesis,a combination of normative analysis and empirical analysis is applied to study different effects of various detailed and quantified incentives on investment efficiency.Empirical analysis shows that bonuses are negatively while other detailed incentives are positively correlated with overinvestment.Equity incentive is negatively related to underinvestment,while other incentive methods have no significant impact on underinvestment.The results can be applied to provide countermeasures and suggestions for government's proper regulation and control of macro-economy,improve relevant laws and regulations and better implement specific incentive measures for executives.The innovation of this thesis lies in several specific aspects.At present,most of the study and researches on executive incentive and investment efficiency are targeted at the influence of two explicit incentive elements,namely equity incentive and compensation incentive,and their influence on investment efficiency respectively;or despite with the study of the four factors of equity incentive,salary incentive,on-the-job expense level and promotion incentive and their influence are taken into account,specific measures and results are rarely mentioned,especially when it comes to the details of share incentives and the quantification of promotion incentives.In this thesis,the author refines and quantifies these four types of motivations to demonstrate the influence of each specific incentive on investment efficiency and to deepen the research in a comprehensive way.