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Regression analysis of listed companies operating risk and executive compensation

Author: LiuHaiYing From: www.yourpaper.net Posted: 2009-11-29 23:19:56 Read:
Abstract: In this paper, the classical regression analysis techniques with modern the model impact assessment theory, empirical analysis of the relationship between the remuneration of executives of China's listed companies with business risk; think that there is a positive correlation between the operational risks of the listed companies with executive pay .
Keywords: executive compensation business risk of the Z-score method incentives
0 Introduction
In recent years, some domestic listed companies after listing its performance has been declining, ST or even be suspended listing or terminate the listing of its operating risk for many reasons.
In this paper, the annual report of listed companies in China in recent years, as well as the remuneration of corporate executives, and other related information, empirical analysis of China's listed companies operating risk and executive compensation issues.
A review of the literature
An Empirical Study of the executive compensation, foreign prevalent in the 1990s. Rosen pointed out that there is a positive correlation between managerial compensation and company size. Jensen and Murphy believes that the link between CEO compensation and performance is weak. The Morck such as test piecewise linear contact between the stake of the members of the Board and the Tobin Q value between 0 to 5%, the Q value and the Ownership of Directors positive correlation was negative, between 5% and 25%, related to more than 25%, may be further negative correlation. , McConnell and Servaes discovered the existence of an inverted U-shaped relationship between Q value manager shareholding, the inflection point in 40% to 50% stake. Hermalin and Weisbach discovered the manager shareholding ratio of 1% to 5%, the Q value of the stake negative correlation, positive correlation in the range of 5% to 20%, more than 20% of the time and become negative correlation.
Domestic began in 2000, Weygand found that executive rewards to corporate performance is not there is a significant positive correlation, while significantly correlated with the size of the company and the regional differences exist; Chen Zhi Guang discovery, asset size, industry characteristics and regional context, equity structure of the operators annual salary have a profound impact; Zhang Junrui such as discovery, the scale of executives annual compensation on the number of companies operating performance, the company have a significant positive correlation relationship, with state-owned shares holding proportion studies have shown that a weak negative correlation; Hu Wanli executive pay and corporate performance significantly positively related to executive team pay gap also a significant positive correlation with corporate performance, executive stock ownership and corporate performance negatively correlated in statistics not significant; study also showed that business goal is to maximize the scale, rather than the maximize shareholders ROE; Wangpei Xin research confirmed that the size of the annual remuneration and company performance indicators and company executives of listed companies in China was more significant, stabilize a weak positive correlation.
Research analysis of company governance issues As for the study of the relationship between executive pay and operational risks.
The 2 listed business risk and executive compensation empirical analysis
2.1 Select variable
2.1.1 explanatory variables (executive compensation variables). Selected four representative characteristic variables: annual total compensation of the executives, the highest annual amount of the remuneration of the top three executives of the highest annual amount of three directors, supervisors and senior management of the total compensation.
2.1.2 explanatory variables. Z scores as explanatory variables used to describe the operational risks, Z scorecard approach is first calculated from the financial reports of listed companies reflect the degree of enterprise financial crisis financial ratios, these ratios give different weights to the size of the financial crisis warning comprehensive risk weighted sub Z.
Z = 1.2X1 1.4 X2 3.3 X3 0.6 X4 1.0 X5 formulas (2-1)
According to the definition of the actual situation in various financial indicators calculated as follows:
X1 - working capital / total assets = (current assets - current liabilities) / total assets
X2 - retained earnings / total assets = (retained earnings surplus reserve) / total assets
X3 - EBIT / total assets = (Profit before tax financial expenses) / total assets
X4 - the the equity total market value / total liabilities = (market price per share (number of shares in circulation Net assets per share (non-tradable shares) / total liabilities
X5 - Sales / Total assets = main business income / total assets
2.2 Sample selection and data sources in order to overcome the impact of the stocks volatility and industry characteristics differences, we have chosen all the A shares listed in the Shanghai Stock Exchange and the Shenzhen Stock Exchange on December 31, 2008, Excluding financial listed companies.
The 2.3 listed company risk and executive compensation regression model
To establish regression model as follows:
The In (Zi) = B0 b1In (a ZBC) ¦Îi formula (2-2)
In (Zi) = b0 b1In (DBC) ¦Îi formula (2-3)
In (Zi) = b0 b1In (GBC) ¦Îi formula (2-4)
Zi is the i-listed companies Z the Points, ZBCi is the annual total compensation of its executives (Unit: RMB) DBCi is the maximum amount of the top three executives reward (Unit: RMB), GBCi its maximum amount of three directors, supervisors and senior management of the total compensation (Unit: yuan), b0, b1 are parameters to be estimated, ¦Îi is a random error term.
2.4 estimated results with company executives annual total return regression coefficient of 6.53E-07, a significant level of 0.00 T was 9.44, R2 = 0.019, R2 = 0.019; executive compensation regression with the maximum amount of the top three, the coefficient of 1.84E-06, a significant level of 0.00, T 9.78, R2 = 0.014, R2 = 0.014; with the maximum amount of three directors, supervisors and senior management compensation regression coefficient of 6.53E-07, a significant level of 0.00, T 9.44, R2 = - 0.019, R2 = -0.019.
Model fit is not very high, mainly due to the very complex factors that affect the company's business risk. But all the coefficients of the explanatory variables are significant and are positive. This indicates that the operation risks of China's listed companies with a positive correlation between executive pay and executive pay higher business risk will also increase accordingly. The reason is China's listed companies reward unreasonable decoupling the operating performance and executive compensation.
3 Conclusion analysis and suggestions
Listed companies in this practice of executive pay is out of line with the results of growth obviously there are drawbacks. First of all, you can not reflect the sense of responsibility of the executives of enterprises. Secondly, the arbitrariness of executive pay will lead to the intensification of the company's business risk, human nature is greedy, the company's executives are in line with the remuneration of the program, if the lack of sufficient constraints naturally by excessive post consumption for personal gain.
To establish and perfect the mechanism of efficient scientific executive incentive is imminent. First, you want to get rid of the system outside the box limit, as a starting point to develop incentives to how to effectively achieve the interests of the shareholders to maximize. Second, a reasonable definition of the labor and remuneration of the managers do not only guarantee the satisfaction of the shareholders and ordinary employees, and can effectively motivate executives enthusiasm; addition, and learn from the more mature Western countries risk annual salary system and equity incentives.
References:
[1] Jensen M, K Murphy .. Performance Pay and Top-Management Incentives [J]. Journal of Political Economy, 1990, 98:225-264.
[2] Hermalin BE, MS Weisbach. Boards of Directors as an Endogenously Determined institution: A Survey of the Economic Literature [C]. NBER Working Paper, 2002.
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