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The Impact of Corporate Financial Asset Allocation on Development of Core Business --The Moderating Effect of Executive Compensation Gap

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DOI: 10.25236/ICSM.2019.017

Author(s)

He Jia, Wan Xuxian

Corresponding Author

Wan Xuxian

Abstract

The investment propensity of corporates, which has been increasingly evident, will affect corporate development in a profound way. This paper takes relevant data of all the A-share listed manufacturing companies from 2008 to 2017 as samples, in order to study the impact of financial asset allocation on the development of core businesses. It surveys the compensation gaps of senior executives in different corporates, and their moderating effect on the above-mentioned two factors. Then it makes further tests on the basis of heterogeneity of property rights. The study shows that: in the whole sample, the financial asset allocation goes against the development of corporate core business, which is embodied as the “crowd-out effect”. With the widening of positive compensation gap, the “crowd-out effect” on the development of the core business brought by financial asset allocation may be inhibited. While negative compensation gap fails to perform moderating effect between financial asset allocation and the development of corporate core business. On account of heterogeneity of property rights, in the case of non-SOEs, positive compensation gap mitigates the “crowd-out effect” of financial asset allocation on the development of the core business, while in SOEs, negative compensation gap intensifies the “crowd-out effect”. These conclusions promote the optimization of corporate compensation contracts, in case the substantial economy distract from intended purpose, so as to enhance the advance of corporate sustainable development.

Keywords

Financial asset allocation; Positive compensation gap; Negative compensation gap; Development of core business