Advertisement

Manager Power and Decision of Capital Expenditure: Empirical Research from China’s Securities Market

Conference paper
Part of the Lecture Notes in Electrical Engineering book series (LNEE, volume 242)

Abstract

Manager power in the firm is so strength that weakens the effect of incentive pay, and always brings out various negative consequences. So the actual capital expenditure, which could be the engine of firm, is turning into a way for management to fertile ground for opportunism. This paper examines the relationship between manager power and capital expenditure, based on 1356 numbers from 452 listed companies in China during 2008–2010 as sample. We choose the level of capital expenditure as the breakthrough direction to further study the influence. Firstly, We find the bigger power leads the higher level of capital expenditure. Secondly, because the platform effect, the big companies are prone to high level of capital expenditure, and also the size weight has more influence on capital expenditure than free cash flow weight. Thirdly, manager power weakens the sensitivity of free cash flow-capital expenditure, which makes the capital expenditure feasible under insufficient condition of cash flow. Fourthly, manager power also weakens the constraint from debt to capital expenditure, whereas high debt pushes the payment to new level. Finally, compared to private-owned listed companies, the phenomenon above is more obvious in state-owned listed companies.

Keywords

Manager power Capital expenditure 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. 1.
    Li X (2007) The level and mechanism of over-investment activities in Chinese listed companies. J Shanxi Fin Econ Univ 6:107–111 (In Chinese)Google Scholar
  2. 2.
    Myers S, Majluf N (1984) Corporate financing and investment decisions when firms have information that investors do not have. J Fin Econ 13(2):187–221Google Scholar
  3. 3.
    Jensen M, Meckling W (1976) Theory of the firm: managerial behavior, agency costs, and capital structure. J Fin Econ 3(4):305–360Google Scholar
  4. 4.
    Stulz RM (1988) Managerial control of voting right: financing policies and the market for corporate control. J Fin Econ 20:25–54Google Scholar
  5. 5.
    Jensen MC (1986) Agency costs of free cash flow, corporate finance and takeovers. Am Econ Rev 76(2):323–329Google Scholar
  6. 6.
    Porta R, Lopez-de-Silanes F, Shleifer A (1999) Corporate ownership around the world. J Fin 54(2):471–517Google Scholar
  7. 7.
    Richardson S (2006) Over-investment of free cash flow. Rev Acc Stud 11(2–3):159–189Google Scholar
  8. 8.
    Hu GL (2006) The empirical test and analysis of ownership structure and corporate capital expenditure decisions. Manage World 1:137–144 (In Chinese)Google Scholar
  9. 9.
    Roll R (1986) The Hubirs hypothesis of corporate take-overs. J Bus 59(2):197–216Google Scholar
  10. 10.
    Quan XF, Wu SN, Wen F (2010) Management power own interest and salary control. Econ Res J 11:15–20 (In Chinese)Google Scholar
  11. 11.
    Boyd BK (1994) Board control and CEO compensation. Strateg Manage J 15(5):335–344Google Scholar
  12. 12.
    Grinstein Y, Hribar P (2004) CEO compensation and incentives: evidence from M & A bonuses. J Fin Econo 73(1):119–143Google Scholar
  13. 13.
    Cheng S, Indjejikian R (2009) Managerial influence and CEO performance incentives. Int Rev Law Econ 29(2):115–126Google Scholar
  14. 14.
    Finkelstein S (1992) Power in top management teams: dimensions, measurement and validation. Acad Manage J 35(3):505–538Google Scholar
  15. 15.
    Bebchuk L, Fried J, Walker D (2002) Managerial power and rent extraction in the design of executive compsensation. Univ Chicago Law Rev 69:751–846Google Scholar
  16. 16.
    Bebchuk LA, Fried JM (2003) Executive compensation as an agency problem. J Econ Perspect 17(3):71–92Google Scholar
  17. 17.
    Hambrick DC, Finkelstein S (1995) The effects of ownership structure conditions at the top: the case of CEO pay raises. Strategic Manage J 16(3):175–193Google Scholar
  18. 18.
    Finkelstein S, Boyd BK (1998) How much does the CEO Matter? The role of managerial discretion in the setting of CEO compensation. Acad Manage J 41(2):179–199Google Scholar
  19. 19.
    Eriksson T (2005) The managerial power impact on compensation-some further evidence. Corp Ownership Control 3(2):87–93Google Scholar
  20. 21.
    Duffhues P, Kabir R (2008) Is the pay-performance relationship always positive? Evidence from the Netherlands. J Multinational Fin Manage 18(1):45–60Google Scholar
  21. 22.
    Chen D, Chen X, Wan H (2005) Salary regulation and expense in-office in state-owned companies. Econ Res J (2):32–35 (In Chinese)Google Scholar
  22. 23.
    Shu YL (2011) Empirical research on relationship between management power, monetary payoffs and expense in-office. Econ Perspect 5:86Google Scholar
  23. 24.
    Dai B, Liu X, Hao Y (2011) Relationship between management power, remuneration con- tracts and state-owned enterprise reform. Modern Econo Sci 7:1–5 (In Chinese)Google Scholar
  24. 25.
    Bai C, Lu J, Tao Z (2011) The multitask theory of state enterprise reform: empirical evidence from China. Am Econ Rev 96(2):353–357Google Scholar
  25. 26.
    Zhu C, Li Z (2008) The research on accounting robustness from national share holding. Acc Res 5:45–49 (In Chinese)Google Scholar
  26. 27.
    Peng M, Luo Y (2000) Managerial ties and firm performance in a transition economy: The nature of a micro-macrolink. Acad Manage J 43(3):486–501Google Scholar
  27. 28.
    Lu R, Wei M, Li W (2008) Management power, expense in office and utility regulation-the evidence from listed companies in China. Nankai Bus Rev 5:85–92 (In Chinese)Google Scholar
  28. 29.
    Cai J (2009) The motivation of over-expenditure in listed companies from the perpective of excutives salary. J Hebei Univ Econ Trade 9:62–67 (In Chinese)Google Scholar
  29. 30.
    Strong JS, Meyer JR (1990) Sustaining investment, discretionary investment, and valuation: A residual funds study of the paper industry. Asymmetric Inf, Corp Fin Investment 2:127–148Google Scholar
  30. 31.
    Ghose A, Telang R, Krishnan R (2005) Effect Of electronic secondary markets on the supply chain. J Manage Inf Syst 22(2):91–120Google Scholar
  31. 32.
    Pawlina G, Renneboog L (2005) Is Investment-cash flow sensitivity caused by agency costs or symmetric information? Eur Fin Manage 11(4):483–513Google Scholar
  32. 33.
    Ding J (2001) Empiricalanalysison investment decision activities of listed companies. Securities Market Herald (9):12–16 (In Chinese)Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.Business School, Sichuan UniversityChengduPeople’s Republic of China

Personalised recommendations