Relative Compensation Of Senior Executives,Equity Checks And Balances,and Investment Efficiency

Investment is an important financial activity related to the long-term development of enterprises,and how to use limited funds to obtain maximum investment returns is a key issue for enterprises.Under the conditions of a perfect market economy,enterprises can make optimal investments,but realistic investment decisions are interfered by many factors,and it is often difficult to achieve the goal of optimal investment.Managers hold the company’s operational decision-making power,but the information asymmetry and weak supervision environment between executives and shareholders provide conditions for executives to shirk responsibility and escape the economic consequences of investment failure,so executives often seek private interests by expanding the scale of investment,on-the-job consumption and other behaviors,harming the rights and interests of shareholders.How to motivate executives to make efficient investments to maximize shareholder value is the focus of corporate concerns.Today,with the high-quality development of China’s economy,the correct definition and measurement of investment efficiency is particularly important.In the past,scholars mostly measured investment efficiency from the perspective of investment scale,such as Fazzari et al.(1988)"investment-cash flow sensitivity",Vogt(1994)"investment-investment opportunity sensitivity",Richardson(2006)and Biddle et al.(2009)investment scale deviation.Among them,Richardson(2006)regression model is the mainstream of domestic scholars’ research in the past ten years.Xia Xiufang et al.(2020)based on big data research of Chinese listed companies show that the "overinvestment" measured by the Richardson model is not overinvestment in the theoretical sense.Different from the existing research,based on "investment efficiency=return on investment/cost of capital ratio",this paper re-measures investment efficiency from the perspective of input and output,analyzes the role of relative remuneration of executives on investment efficiency and the impact of equity structure on the relationship between the two,and analyzes the differences formed by the nature of property rights under the background of "salary limit order".Using data from listed companies from 2010 to 2021 as a sample,this article measures investment efficiency from an input output perspective,studies the relationship between executive relative compensation and investment efficiency,and the impact of equity checks and balances on the relationship.At the same time,it further analyzes the differences between the aforementioned relationships in enterprises with different property rights.The empirical results show that the relative remuneration of executives has an inverted "U" relationship with investment efficiency.The improvement of equity checks and balances can effectively inhibit inefficient investment caused by excessive relative remuneration of executives,and make a positive linear relationship between the relative remuneration of executives and investment efficiency.Further analysis shows that the above relationship still exists in state-owned enterprises,while in non-state-owned enterprises,the relative compensation of executives only has a positive incentive effect on investment efficiency,and this effect is only significant when the equity balance is high.