Dissertation > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management

Study of Executive Pay-performance Sensitivity Based on Ultimate Controlling Shareholder

Author ChenChenZuo
Tutor TanXiaoPing
School Jinan University
Course Accounting
Keywords executive pay-performance sensitivity ultimate controlling shareholder cash flowrights separation of two rights
CLC F275
Type Master's thesis
Year 2013
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Nowadays, listed companies in China always have the main character of relativelyconcentrated equity. So there are double principal agent conflicts, the first is the agent conflictsof executives and shareholders; the second is the agent conflicts of largest shareholder andminority shareholders. Effective pay compensation mechanism can prompt executive work hard,but due to the conflicts of largest shareholder and minority shareholders, the pay incentivemechanism can be failed. Ultimate controlling shareholders’ cash flow right has a positiveincentive effect, while the two rights separation has negative entrenchment effects; therefore, theultimate controlling shareholder influence on executive has two aspects. First, as the cash flowrights of ultimate controlling shareholders, they tend to be more consistent with the overallinterests of the company. They may strengthen the supervision of senior executives, in order toprevent the executives from damaging the interests of companies for private benefits, thusimproving corporate performance. The pay incentive mechanism will be more effective; Second,as the divergence between control rights and cash flow rights, Ultimate controlling shareholderswill conspire with executives, entrench upon the interests of minority shareholders, reduce thecorporate performance, lead the pay compensation mechanism failed.The paper selects the a-share listed companies from2007to2011as the samples. The paperfrom the perspective of the ultimate controlling shareholders, studies the cash flow rights, tworights separation, and the Ultimate controlling shareholders’ characters influence on theexecutive pay-performance sensitivity. The paper comes to the conclusions as following:(1) Thepositive correlation between executive pay and company performance is significant;(2)Compare with the list companies with low cash flow right, the executive pay-performancesensitivity in the list companies with high cash flow right is significant higher;(3) under the sameconditions, compare with state-controlled listed companies,the correlation between cash flowrights and executive pay-performance sensitivity in non-state-controlled listed companies ismore significant;(4) Compare with the list companies with separation of two rights, theexecutive pay-performance sensitivity in the list companies with non-separation of two rights issignificant higher;(5) under the same conditions, compared with the state-owned listed companies, the correlation between separation of two rights and executive pay-performancesensitivity in non-state-controlled listed companies is more significant.

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