An Empirical Analysis of Management Entrenchment Effect on Executive Compensation

Based on the main factors of management entrenchment which influencing the executive compensation, this paper analysis that the relation between management entrenchment and executive compensation in China's listed companies. The scientific hypotheses of managerial entrenchment were reviewed firstly, and then linear regression and correlation analysis were made to analyze the relationship. After carefully selected, 2719 companies listed in Shanghai and Shenzhen Stock Exchanges in china during 2004 similar to 2006 were taken as the sample for this research. Executive compensation is treated as the dependent variable, eight characteristics of Management Entrenchment (firm size, board size, independent director, ratio of current liability, proportion of executive shares, average age of executives, ratio of sex) as the independent variables. The result from the research indicated that firm size, board size, ratio of current liability and proportion of executive shares were significantly and positively correlate with executive compensation. On the contrary, independent director, average age of executives and ratio of sex were no significantly and positively (negative) correlate with executive compensation. Our research finds that management entrenchment effect executive compensation of China's listed companies.