Research On The Executive Salary Incentive,R&D And Financialization

Currently,China’s economy has transitioned from a stage of rapid growth to a stage of high-quality development.As the Chinese economy enters a critical stage of structural transformation,real investment returns demonstrate a decreasing trend due to intensifying industry competition,rising costs of raw materials,and the gradual disappearance of the demographic dividend.Meanwhile,the "virtual economy" is rapidly growing in China.Due to the high financial returns,with investment in real estate much higher than that of real investment,many non-financial enterprises are attracted from industrial investment to financial investment,driven by the profit-seeking motive of capital.According to Wind’s incomplete statistics,more than 360 listed companies in Shanghai and Shenzhen will enter the capital market to invest in stocks in 2021 alone.Corporate financialization,one of the specific micro-manifestations of economic financialization,occupies a mainstream position in the process of "moving from real to virtual," and has become the focus of academic research.As a treasure of Chinese traditional culture,Chinese medicine is highly valued in its industrial development.However,some listed TCM enterprises,including Jilin Aodong,Yunnan Baiyao,Tasili,and other high-quality TCM enterprises,frequently trigger a rush for profits in the capital market.As important decision-makers in enterprise investment,senior executives pay more attention to short-term performance during their term of office,according to the principal-agent theory.Financial assets become a means of earnings management due to their strong liquidity and easy realization.Therefore,the contract choice in executive motivation plays a crucial role and profoundly affects the behavior of enterprise decision-making.If executive salary compensation is highly linked to short-term net profit,and the main business’ s performance is weak,how will corporate financialization affect the R&D investment of enterprises? What is the correlation between executive incentives and the allocation behavior of corporate financial assets?Based on the above background,This paper selected Yunnan Baiyao,a leading TCM enterprise,as the subject of study to investigate the economic consequences of enterprise financialization at the micro level.The paper aims to explore the relationship between executive incentives,R&D investment,and financialization to enhance the company’s internal governance,prevent financial risks,and promote the development of the real economy and financial investment.The paper draws three conclusions.Firstly,Yunnan Baiyao has imperfect internal control,and its executive salary compensation incentive model magnifies the management’s "profit-driving" motivation.This creates a principal-agent problem where the management is likely to make investment decisions that harm the enterprise’s long-term interests,such as entering the capital market to gain huge profits.Secondly,Yunnan Baiyao frequently purchases financial assets with strong liquidity,which results in significant financial losses due to fluctuations in the capital market,affecting the stability of corporate earnings.Finally,excessive financialization has a "crowding out" effect on the R&D and innovation of Yunnan Baiyao.The company’s R&D investment is not only far lower than the industry average but also ranks at the bottom of the industry for an extended period.In the long run,this will cause the company to lose its competitive advantage,which is not conducive to its sustainable development in the future.