Abstract
Top executives incentives and risk management are important contents of corporate governance research. However, few empirical data studies of risk management take top level manager incentives economic benefit into account, and the executive incentives effectiveness is unclear in most studies, the paper collected empirical data of listed companies in financial industry in 2008-2013, and we found a inverted “U” shaped non-linear curve exists from the relationship between ERM and corporate value, when it exceeds a certain level, ERM will come into being an significantly diminishing marginal effect. Secondly, when the degree of top executives incentives become weak, on the contrary, the risk management behaviors will happen with increasing frequency and improve reflected coefficients between enterprise value and ERM, and it’s contributive to raise enterprise value. However, this influence is weak and not significant for executive equity incentive. The empirical results provide some references for the financial enterprise risk management application and the practice of executive incentive.
Highlights
It is well known that the ownership and management rights were separated gradually, and senior executives are the important part of corporate governance
It means that when the degree of top executives incentives become weak, on the contrary, the risk management behaviors will happen with increasing frequency and improve reflected coefficients between enterprise value and ERM, and it’s contributive to raise enterprise value, the hypothesis 2 was proved
The article explored the deep mechanism of ERM to enterprise value from the perspective of executive incentives in financial firms, and divided executive incentives into compensation incentives and equity incentives at the same time took the executive incentives as regulated variable to study the relationship between risk management and enterprise value
Summary
It is well known that the ownership and management rights were separated gradually, and senior executives are the important part of corporate governance. Studies have shown that degree of executive incentive have a direct effect on their risk propensity and behavior choice..as human capital investors, executives individual performance are largely decided directly by their salary in company. Most existed researches often focus on the correlation of executive incentive and enterprise value or the influence of executive incentive to enterprise risk bearing, etc. The kind of studies or similar studies such as take executive incentive as regulating variable, from the perspective of executive incentive to explore the influence of enterprise risk management to the enterprise value are deficient. In view of the direct influence of the executive incentive on the risk propensity and the direct action of the executives on the enterprise risk decision making, this paper mainly discusses that: Are executive incentives to be a direct cause of the corporate executive take measures to manage or avoid risk ? Vol 12, No 1; 2017 enterprise’s own value? Is the level of executive incentive has become a key variable in the regulation of enterprise risk management ( known as Enterprise Risk Management (ERM) level and enterprise value? What is the relationship between the level of enterprise risk management and enterprise value? These questions may be found in this article
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