A Study Of Executive Excess Compensation And Corporate Financial Asset Allocation

At present,China’s economy is in the "three-phase overlap" new normal,the return on investment in the real economy has dropped significantly,while the return on financial investment is steadily high,showing a counter-cyclical upward trend,a large number of funds into real estate,finance and other virtual economy industries,the real enterprises try to find new profit growth points through financial investment activities.The trend of financialization is becoming more and more obvious.The report of the 19 th National Congress of the Communist Party of China proposed to "deepen the reform of the financial system and enhance its ability to serve the real economy".The report of the 20 th CPC National Congress also stressed the importance of the development of the real economy.At present,the development of the real economy is gradually "de-realizing",and the overlapping of national policies constantly emphasizes the importance of guiding the financial economy to better serve the development of the real enterprises,highlighting the importance of the real economy.Many scholars have confirmed that the allocation of financial assets by physical enterprises is conducive to the growth of their short-term profits,but blind financial investment can threaten the long-term development of the enterprise economy by undermining the performance of the main business and squeezing out R&D investment.It is important to explore the factors affecting the financial investment of real enterprises and clarify the intrinsic mechanism,so that the government can reasonably introduce corresponding preferential policies to promote financial and economic construction and better support the development of real industrial economy.As one of the investment objects of enterprises,the factors influencing the allocation of financial assets come from many aspects,among which,the investment decision of executives is one of the most intuitive factors.As a rational economic person,executives have great discretion in corporate financial investment decisions,and the compensation incentive for executives is an important factor influencing the behavioral decisions of executives,and the contradiction of long-term and short-term interests involved in the allocation of corporate financial assets will amplify the role of executives in it,so the design of the compensation incentive system for executives will largely affect the allocation of corporate financial assets.In recent years,the phenomenon of "high salary for senior executives " has become more and more common,which is closely related to the increase of executive overpayments.As income distribution is a matter of social equity,harmony and corporate efficiency,the media,the public and the government have raised serious questions about the match between executive overpayments and the ability of executives,and the incentive effect of such overpayments has also aroused widespread concern in academic circles.Under the two different theories of "effective compensation contract theory" and "management power theory",executive overcompensation can produce two opposite incentive effects,and it is an important topic in the current incentive mechanism research to investigate the incentive effect of executive overcompensation.In the context of the public’s questioning of executive overcompensation,the problem of "de-realization to deficiency" of the real enterprise economy has been highlighted,but there is a lack of attention to the impact of executive overcompensation on the financial investment decisions of enterprises.In view of this,this paper empirically tests the impact of executive excess compensation on corporate financial asset allocation from two opposing perspectives:the "Effective compensation contract theory" and the "Management power theory",take the data of Shanghai and Shenzhen A-share listed companies from 2007 to 2021 as a sample.The paper concludes that The paper concludes that(1)Executive overcompensation significantly increases the allocation of financial assets of real enterprises,which supports the "management power theory".(2)The mechanism analysis finds that executive overcompensation significantly increases agency costs and decreases the comparability of accounting information,and all these paths increase the allocation of financial assets of real enterprises.(3)In further studies,The research on heterogeneity grouping at the enterprise level found that the positive effect of executive overcompensation on corporate financial asset allocation was more pronounced in non-state owned firms,firms with lower levels of internal control,and firms with lower main business revenues;the external environment subgroup finds that the incentive for executives to allocate financial assets for compensation defense is stronger in firms with low marketization process,low analyst attention,and low product market competition.The analysis of economic consequences found that the allocation of corporate financial assets promoted by senior executives’ excess compensation formed a "crowding-out effect" on the future performance of enterprises’ main businesses.This paper mainly examines the incentive effect of executive excess compensation from the level of corporate financial investment decision-making,which broadens the thinking on how to optimize the design of compensation system and the coordination of financial assets.The research contributions of this paper are mainly reflected in the following two aspects:(1)This study is conducive to a deeper understanding of the rationality of the design of the executive compensation contract system from the perspective of financial investment,broadening the research ideas on executive overcompensation and corporate financialization,and providing policy suggestions for guiding the financial economy back to the track of serving the real industrial economy.(2)The findings of this paper test the pay defense hypothesis and enrich the research on the pay defense path,and provide good empirical evidence to support the view of "management power theory",as well as reveal the self-interest of financial asset allocation behavior of executives who receive excessive pay,and provide empirical reference for optimizing the financial asset allocation of enterprises.