Executive Compensation and Environmental Performance: From a Perspective of External Governance Environment of Listed Companies

Zhou Hui; Deng Shu

doi:doi:10.16538/j.cnki.jsufe.2017.05.003

Abstract

In order to deeply understand the impacts of corporate executive incentives on environmental performance, based on the principal-agent theory and legitimacy mechanism, this paper uses the PSM method to eliminate the interference of endogenous factors and empirically tests the correlation between executive compensation of listed companies and environmental performance under other unchanged conditions based on the sample of 166 listed companies on the Shanghai and Shenzhen Stock Exchanges from 2009 to 2012. The results show that the relationship between executive compensation and environmental performance is an inverted " U” shape, and the external governance environment has a differentiated impact on executive compensation and environmental performance at different levels. In addition, the research results also suggest that executive compensation is an important factor affecting corporate environmental performance. It not only provides an empirical evidence that when the company takes the action of executive performance assessment to make sure the compensation, the environmental performance level can be assumed to be one of the important evaluation indexes, but also promotes decision-making reference for the governments to create external governance environment with low-degree government intervention and high-level rule of law, and transform into the service-oriented governments step by step as well as strengthen environment law enforcement.