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Growth and selection of internal corporate governance mechanisms

Author: SunYongCai
Tutor: MaoHongTao
School: Southwestern University of Finance and Economics
Course: Financial Management
Keywords: Growth companies Investment opportunity set Incentives Oversight mechanisms
CLC: F224
Type: Master's thesis
Year: 2010
Downloads: 200
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Abstract

In the wave of reform and opening up 31 years, our country has achieved rapid economic development, especially in the economic transition process spawned many growth companies. Growth companies have advanced and applicable technologies, good use of a variety of valuable resources, unit consumption is low, the input-output ratio, in a virtuous cycle of development phase. Therefore, these companies maintain high growth, can produce huge economic benefits to China's economy has brought unprecedented power and new life. However, the company's high growth is often accompanied by a high risk and therefore determine the level of growth of a business is crucial. Especially the recent introduction of relevant policies GEM listed with making preparations for further business growth become hot issues of social concern. At present, China Main Board listed companies are mostly state-owned enterprise restructuring, and the motherboard market is different, GEM will open its market positioning will be the main growth with high science and technology enterprise, is a high-growth entrepreneurship Listed companies are the basic requirements of the GEM market, the main objective is to promote growth-oriented start-ups and innovation development of enterprises. In the fast growing business, the business complexity and risks than the general enterprise, subsequent development of GEM companies, there are many uncertainties, and therefore highly concerned about the company's future ability to continue to grow. Growth for the company internal governance mechanisms normal operation, maintenance, principals and other related stakeholders to provide effective protection of legitimate rights and interests. Due to the high growth enterprises gather a large number of social advantages of resources, its resource allocation efficiency and safety of the use of funds by the widespread concern, therefore, focus on the growth of the company's internal governance mechanism selection problem, for the company's sustainable development, protection the interests of investors, encourage entrepreneurship are an extremely important theoretical and practical significance. Based on this, on corporate growth and expansion of the internal governance mechanism, the adoption of innovative investment opportunity set (IOS) as a proxy for growth, focusing on the meaning of IOS, characteristics, measurement methods and its senior management salary, executives shareholding ratio, the correlation between the proportion of independent directors. This study found that a variety of internal corporate governance mechanisms are not suitable for all types of businesses, we should be organized according to their environmental conditions in which the distinction between business growth. Growth of the company and agency costs are relatively high degree of information asymmetry. Shareholders because managers have not mastered the level of future earnings investment projects inside information, the higher the investment opportunity set of companies, managers can not control the shareholders have inside information, the more both the greater the likelihood of conflict of interest , resulting in more serious agency problems. Agency theory is that through a series of internal corporate governance mechanisms arranged to inhibit the agency problem, thereby maintaining the interests of managers and shareholders agreement. This article is from the incentive and monitoring mechanisms to introduce both internal growth and corporate governance mechanism correlation between selected. In the incentive side, higher growth businesses, information asymmetry and corporate investment opportunities greater the uncertainty, the more the company will pay higher salaries to encourage managers of investment opportunities they receive high uncertainty and thus increase the company value. Senior management incentive compensation annuity beneficial to the company's current development, senior managers holding the company's future revenue and earnings linked and should therefore be implemented in accordance with the corresponding growth in the enterprise level salary incentives; and supervision, as opposed to low-growth companies, high-growth companies should be hiring more independent board directors and the supervisory role of independent directors to the letter. Better growth, more opportunities for the future development of enterprises tend to establish a more comprehensive monitoring mechanism, a relatively high proportion of independent directors. This paper is divided into five chapters, as follows: The first chapter is the introduction section, focusing on the topics of sources. Research background, significance and related literature review. This chapter is mainly based on \The concept for growth companies, features a number of elements and their internal governance preliminary theoretical framework for defining and analyzing; systematically combing the relevant literature summarized, pointing out that the main contribution of this paper and the existing research is insufficient. The second chapter describes concepts related to business growth and its proxy variables. This article first define business growth and the introduction of modern enterprise growth theory, growth theory from the external environment and endogenous growth factors emphasize two aspects of organizational environment is a key factor affecting business growth. After this draw domestic and foreign research, choice of investment opportunity set (IOS) as a proxy variable growth of enterprises, this variable is the environmental impact from the internal and external organizational perspective comprehensive analysis of investment opportunities investment options and the correlation between the internal corporate governance. The section details the investment opportunity set (IOS) this variable is defined, and the advantages compared to other indicators and measurement methods. Chapter theories and assumptions part, mainly in principal-agent theory, asymmetric information theory as a starting point, elaborated through an integrated enterprise growth and incentive mechanisms, monitoring mechanisms, internal corporate governance mechanisms link between the proposed article three assumptions: high-growth companies than the low-growth companies paid to executives higher pay, more likely to use equity incentives to maintain a higher proportion of independent directors. Chapter empirical research, but also a core part of this article. This section describes research methods in data sources, model design, descriptive statistics, regression analysis, sensitivity analysis, empirical conclusions drawn after. Articles by choosing 2005-2007 2380 data of listed companies as the research sample, using factor analysis method defined IOS, the first descriptive statistical analysis, correlation analysis between variables, then empirical analysis, the final conclusion. By the regression results, assuming a hypothetical three have been validated with, but assuming two did not get the expected results, this paper also make cause analysis. The fifth chapter is the conclusion and policy recommendations. The empirical results show that the growth of corporate governance mechanisms affect the company's internal selection, further studies have found that high-growth firms tend to adopt a more aggressive executive compensation and monitoring mechanisms. This article also found the same time, China's high-growth company executives does not hold a higher proportion of equity, which is the development of our equity incentive mechanism imperfect status quo are inseparable. Conclusion For the above given the appropriate policy recommendations: establish a sound equity incentive mechanism, improve GEM listed companies, especially internal corporate governance mechanisms. After Posts frankly stated deficiencies and the future development direction of prospects. Main contribution of this paper is to: first using factor analysis method to business growth indicators - investment opportunity set (IOS) origin, meaning, measurement methods described in detail, the recent introduction of predictive variables for stakeholders comprehensive evaluation of GEM listed companies in particular provide an important basis for the company's growth; Secondly, the paper stood IOS perspective, consider whether sufficient investment options on the pay structure, proportion of independent directors have significant impact, so IOS is evaluated within the company an important indicator of governance mechanisms; once again, in view of the GEM market are high-growth enterprises, in accordance with this conclusion, the GEM companies should establish a special company for their own internal governance mechanism, which is the relevant provisions of the GEM market to provide reference for the introduction of ; Finally, the article will only break through the growth of enterprises and senior equity incentive combination of research, further study of the growth and executives annuity correlation between salary, draw a significant difference in the growth of the company, not only equity incentives, there are differences, annuities pay values are quite different.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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