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Research on Economics and Management. 2012, (11) Core

Ultimate Control,Management Incentives and Cost of Equity CapitalChinese Full Text

WEI Hui,WU Hao-min TAN Wei-rang (School of Economics and Management,Shihezi University,Shihezi 832003)

Abstract: Based on the data of Chinese non-financial listed companies from 2004 to 2006,and placing the agency conflicts between management and shareholders,the ultimate controller and minority shareholders in a framework,this paper investigates the relationship between management incentives and the cost of equity capital,and examines whether this relationship is influenced by the agency conflict between the ultimate controller and minority shareholders.Combined with the nature of the firms’ ultimate controller,it further investigates whether the cost of equity capital itself and the relationship between management incentives and the cost of equity capital is influenced by managerial power.Empirical results show that managers’ monetary compensation helps reduce the cost of equity capital,while manager’s ownership of equity has no significant effects on the cost of equity capital.The degree of separation of two rights of ultimate controller and managerial power weakens the effect of management incentives on lowering the cost of equity capital.While the cash-flow rights of ultimate controller enhances the negative correlation between management incentive and the cost of equity capital.And the government identity of ultimate controller can inhibit the negative impact of the manager’s power on the cost of equity capital.
Keywords：

Ultimate Controller; Management Incentives; Managerial Power; the Cost of Equity Capital;

  • DOI：

    10.13502/j.cnki.issn1000-7636.2012.11.011

  • Series：

  • Subject：

  • Classification Code：

    F275

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