Research on Mechanism of Enterprise Internationalization,Corporate Governance Structure and Executive Compensation Incentive
|School||Southwestern University of Finance and Economics|
|Keywords||Enterprise internationalization Corporation governancestructure Executive Compensation Incentive|
Economic globalization is irresistible. To achieve substantial development in the future, each country must actively integrate into the globalization process, participates in, cooperate and compete, increasing the international competitiveness of nation and enterprises. Since the reform and open up, Chinese economy has actively integrated into the globalization process, participating in the international division of labor. By "bringing in" and "going out", the level of Chinese opening up has been greatly improved, many enterprises accelerate the pace of going out, and the degree of internationalization of the domestic economy has been greatly deepened.We are now in an ear when everyone, from famous scholars to Captains of Industry, seems to subscribe to the notion that internationalization can bring more profits to firms. However, empirical studies of the past40years have drawn divergent results for the link between performance and the degree of a firm’s internationalization. Some scholars’ study showed that internationalization is good for the firm’s growth, while other scholars’ study showed that internationalization may impair the firm’s economic return. Some studies even conclude that there is no systematic relationship between a firm’s internationalization and its performance. At the same time, the practice of Chinese enterprises’ internationalization often makes us perplexed. On one side, the amount of China’s export trade and outward FDI has been increased abundantly and steadily; while on the other side, negative news about Chinese enterprises’ overseas operation keep on coming in. These theoretical and practical contradictions all point to one question, that is, whether international expansion can certainly improve the firm performance, especially in China as a developing country during the stage of economic transition. The discussion on this question is the examination of the fundenmental hypothesis under the specific environment of China, which may help to reveal the impacting mechanism of internationalization on firm performance and provide some decision-making evidence for the internationalization of Chinese enterprises.In view of the unconvincing results pertaining to the performance implication of internationalization in the existing literature, some scholars held that the research of enterprises’internationalization should more focus on the company’s governance structure. Therefore this paper believes that the scholars pay more attention to the directly influence of international performance to the corporate performance, while neglecting the middle variable such as the behaviors of managers and effective salary incentive mechanism. But these factors are very important and direct for improving the performance. So this paper discuss how did the enterprises’ internationalization influence the structure of company treatment and the behavior of managers, finally reach the ultimate goal of promoting enterprise performance. Exploring the mechanism and path of internationalization to enterprise performance, not only deepen our understanding of the modern company management structure, managers, compensation contracts cognition and the variability in our country, but also can clear the part of corporate governance, managers’salary incentive mechanism in the internal position.In this paper, we use data of listed companies in Shenzhen and Shanghai stock market during2009and2010, Monetization of remuneration of the manager to motivate the total monetization of remuneration and on-the-job consumption substitution (structure) of start from the internationalization of the firm, to do the empirical analysis, in order to research enterprise internationalization is a direct role or salary incentives for managers to improve corporate governance structure and thus indirectly affect the remuneration of managers. Then study into the sensitivity between executive compensation and corporate performance and viscous, verify that the internationalization of the firm whether to enhance the sensitivity between the two and reduce the stickiness problem. At this point, the enterprise internationalization through the corporate governance structure, manager incentive pay ultimately affects the business performance of the intrinsic conduction mechanism can gradually become clear.This paper is divided into5parts.The first chapter is introduction. It introduces the research background, research question and research significance. The second chapter is literature reviews. A brief introduction on the definition of the internationalization is introduced. Then it reviews the previous conclusions of international research on business performance, the behaviors of managers, and incentive pay, corporate governance.The third chapter is the institution background, theoretical analysis and study design. First, introduce the evolution of international development of China’s enterprises, followed by the theoretical analysis of the internationalization of the firm manager monetization of the total compensation, monetary remuneration and on-the-job consumption alternative, the sensitivity of executive compensation on firm performance, as well as the sticky problem. On this paper, the hypothesis is introduced. Finally, we introduce the sample selection method, the measure of degree of internationalization using FSTS. On behalf of the corporate governance structure, board size, board of supervisors scale and proportion of independent directors to serve as chairman and general manager, return on assets (ROA) to measure corporate performance.The fourth chapter is the empirical analysis and conclusion. Describe the statistics of internationalization impact on the total compensation of managers, the structure, sensitivity, and viscous problems, and model regression analysis of the structure. The results show that the total compensation of international managers, the result has a significant positive impact. It can enhance the sensitivity between executive compensation and corporate performance at the same time reducing the viscosity between the two.The fifth chapter is the conclusions and policy recommendations. This part summarizes the innovation of this paper, as well as the lack of research methods and ideas, and finally the prospect of future research directions.The conclusions of this paper are in four fields:(1)Enterprise internationalization has a positive and significant impact on the total amount of monetization pay of the managers. The two ways include both international indirectly affect the monetization of managers, and the international indirectly affect the monetization of managers pay through influence on the corporate governance structure.(2) The greater the degree of enterprise internationalization, the lower the proportion of the manager’s job consumption of the managers totally receipts (currency and pay+job consumption). The two ways include both international directly affect the salary structure of managers pay through influence on the corporate governance structure.(3) The greater the degree of enterprise internationalization, the more sensitive the relationship between the executive pay and company performance. After introduction of new variable, the internationalization, joining the interaction terms with company’s accounting and market performance, the impact of executive compensation is significantly enhanced.(4)The deeper degree of internationalization of enterprises, the less likely-raised of the executive payment sticky problem. After introduction of new variable, the internationalization, it can effectively improve the remuneration of the managers in the decline in performance of the "ratchet effect"The creative points of this paper are in two fields:(1) This paper shows more comprehensive and systematic study of the internationalization into the corporate governance and executive compensation incentive. Most of previous literature study on the internationalization of the firm only focusing on the direct impact of internationalization on firm performance while ignoring the intermediate variables such as the behavior of managers and effective pay incentive neither does the impact of the internationalization of the research enterprise governance structure. This paper explores how does the internationalization of the firm effect corporate governance structure, and salary incentives for managers, in order to improve the behavior of managers, and ultimately achieve goal to enhance corporate performance.(2) Compared with the previous research method of using stats of listed companies in Europe and the United States and other developed countries to research how internationalization affect business performance thus to implore the relationship between them, there is few study into emerging economies like China listed companies, to do the empirical analysis of how the corporate internationalization degree influence the corporate governance structure and the manager incentive thus to improve the performance. Study into this issue can not only enrich and extend the academic level in the sample empirical research of Europe and the United States and other developed countries listed companies, but also provide theoretical and empirical basis in the internationalization of Chinese enterprises.