Executive Incentives,Financing Constraints And Inefficient Investment

From a macro perspective,investment is an important driver of China’s economic growth,and from a micro perspective,it is the basis for future corporate development and value creation.However,inefficient investment in the form of under-investment as well as over-investment is common among Chinese listed companies,with some executives under-investing due to risk aversion and others over-investing due to the pursuit of economies of scale.Principal-agent conflict is the root cause of inefficient corporate investment.Executive incentives are the most direct and effective means to alleviate agency conflicts and motivate managers to make scientific decisions.Therefore,thesis adopts an empirical analysis to explore the role of the executive incentive system practiced by Chinese enterprises in inefficient investment,and compares two different types of incentives-equity incentives and compensation incentives-to obtain the findings of thesis.At the same time,financing constraints are an important environmental factor faced by firms in the investment process,and when analysing the relationship between executive incentives and inefficient investment,it is necessary to consider the possible influence of financing constraints on it at the same time.Building on previous research,thesis uses financial constraints as an analytical framework to represent managerial incentives and inefficiencies in business,and examines the impact of financial constraints on the relationship between these two factors.Having developed a theoretical framework for analysing the relationship between management incentives and inefficient investment,thesis examines the impact of management incentives on inefficient investment using stock data from companies listed in Shanghai and Shenzhen,China.At the same time,financing constraints are added as moderating variables to further explore the effect on the impact of executive incentives and inefficient investment in listed companies.It is found that:(1)compensation incentives are conducive to alleviating the extent of underinvestment and overinvestment in listed companies;(2)executive equity incentives are conducive to alleviating the phenomenon of underinvestment,but will intensify the overinvestment behaviour of enterprises;(3)financing constraints,as a moderating variable,have a negative moderating effect on compensation incentives and underinvestment,when enterprises face financing constraints,the alleviating effect of compensation incentives on underinvestment will be weakened.However,financing constraints have no significant effect on compensation incentives and overinvestment.(4)Financing constraints as a moderating variable has no significant effect on equity incentives and inefficient investment.The empirical results show that a firm’s investment efficiency is strongly correlated with a firm’s executive incentives,while financing constraints have an impact on the relationship between compensation incentives and a firm’s investment efficiency to some extent.This requires listed companies to take the role of financing constraints into full consideration when formulating their remuneration incentive packages and to enhance the investment efficiency of the company by adjusting the mix structure and mix pattern of incentives.