Fund ownership and executive compensation: From the perspective of entrepreneurship

Abstract

Richard Cantillion first proposed that entrepreneurs raise the efficiency of economic resources from a low level to a high one. Entrepreneurship is a set of special entrepreneur skills (including spirits and skills), especially the abilities of innovating, taking business risks, undertaking pressures, and etc. Because of the complexity, the innovativeness, and the impossibility of direct acquisition of entrepreneurship, professional investors should give a higher compensation to executives with this spirit. Being the most important professional investors in China's security markets, securities investment funds have large market scales and are in a fiercely competitive environment. Thus to listed firms, funds have the strongest monitoring motivation and relative strong monitoring capacity. They are also the strong backing to carry forward entrepreneurship. This paper aims to study the relationship between the pay level of executives in China's listed firms and fund investors' supporting level to entrepreneurship. The study finds: compared to executives in firms without shares owned by funds, executives in firms with shares owned by funds receive higher compensation; the higher proportion of fund ownership, the higher the pay level of the executives is. However, there is not a significant positive correlation between the pay levels of executives with the concentration of fund ownership.