Executive Compensation Incentives,on-the-job Spending And Corporate Value

Under the modern corporate system,executives,as core members of management,play an important role in the process of corporate value creation.However,the separation of ownership and operational management can lead to proxy issues between corporate shareholders and executives.According to the theory of proxy theory and other related theories,executive incentives are an important mechanism for solving the proxy problems between shareholders and executives of an enterprise.Proper and reasonable incentives can promote the convergence of the interests of shareholders and executives through the supervision of executives and incentive measures to reduce the agency costs of both and promote the enhancement of enterprise value.However,along the way,debt financing is also having an impact.Rational creditors,in order to avoid self-inflicted damage from executives and shareholders with converging interests using low-interest loans to invest in risky projects,may enact high interest rates or restrictive clauses to increase the level of supervision when making credit decisions,which leads to agency costs between shareholders and creditors.At the same time,the existence of debt financing,on the one hand,will reduce the enterprise free cash flow to avoid the self-interested behavior of executives,but on the other hand,also let the enterprise bear the pressure of debt service and financial difficulties costs.What,then,exactly is the impact of executive incentives on business value in the context of debt financing,which is the main question explored in this paper.In addition,scholars currently focus on executive motivation mainly on executive compensation incentives and executive equity incentives and other explicit incentives,while in recent years with the development of various corporate affairs,executive in-service spending,internal promotion,reputation incentives and other implicit incentives have also played an important role in the executive motivation methods.Therefore,this paper selects the explicit incentive approach of executive compensation incentive and the implicit incentive approach of on-the-job spending as the entry point for executive incentive,while classifying them into normal on-the-job spending and excess on-the-job spending according to thetheoretical necessary degree of on-the-job spending.Based on the direct impact of executive compensation incentives and on-the-job spending on enterprise value,the moderating role of debt financing in this process is focused on,and the maturity structure and source of the debt financing distinction are explored separately.In this paper,we firstly comb through the direct effects of executive compensation incentives and on-the-job spending on enterprise value and the effects of debt financing in this process based on relevant literature and theory,and propose corresponding research hypotheses.Secondly,the data of Shanghai and Shenzhen A-share listed companies from2010-2017 were used as the research sample,and the research variables and regression models were designed for empirical analysis.To ensure that the empirical results are more robust,the paper also uses a proxy variable approach for robustness testing.The following results were obtained through empirical analysis:(1)executive compensation incentives have a significant positive impact on enterprise value;(2)normal on-the-job spending of executives has a significant positive impact on enterprise value,while excess on-the-job spending has a significant negative impact on enterprise value;(3)debt financing has a negative moderating effect in both executive compensation incentives and on-the-job spending affecting enterprise value,specifically,an increase in the level of debt financing suppresses the positive impact of executive compensation incentives and normal on-the-job spending on enterprise value,but weakens the negative impact of excess on-the-job spending of executives on enterprise value.To further validate how debt financing plays a moderating role,the paper also distinguishes between debt maturity structure and debt source for analysis.Finally,targeted and practical research recommendations are made based on the results of the regression analysis.