TITLE:
Research on Top Management Incentive and Supervision under the Framework of Principal-Agent Based on Social Trust
AUTHORS:
Liushan Luo
KEYWORDS:
Social Trust, Pay-for-Performance, Principal-Agent Framework
JOURNAL NAME:
Modern Economy,
Vol.9 No.11,
November
27,
2018
ABSTRACT: This paper investigates the impact of social trust,
an extremely important informal institution, on corporate governance. We use
the data of 2008-2016 China’s A share listed private companies, to study how
the regional social trust environment affect the efficiency of salary incentive
mechanism on CEOs. We find that social trust can significantly improve the
effect of executive compensation incentive, namely the compensation of the
senior executive is more sensitive to performance in a firm with higher social
trust. In particular, social trust can be an effective alternative to formal
institution and plays an important role in corporate governance when the formal
institution faced by the company is undeveloped.