Research on Combination of Inventive Mechanisms for Marketization-recruited CEOs in State-Owned Enterprises

Abstract

The reform of state-owned enterprises has entered into a critical and deep-water area. Exploratory research on incentive methods for CEOs who are recruited into state-owned enterprises through market needs theoretical guidance and support from the related theories of incentive scheme and mechanism. The extant literature studied the combination of incentive mechanisms for CEOs; however, substitution relationship and complementary relationship between different incentive mechanisms are under-researched. This study develops theoretical models to study the effectiveness and restrictiveness interacted between different incentive mechanisms. According to our findings, the short-term performance share incentive and the effectiveness of long-term stock ownership incentive has a negative correlation with CEO risk aversion, environmental uncertainty and stock market uncertainty; the short-term performance share incentive, the long-term stock ownership incentive and CEO control incentive are complementary. Increase of CEO delegation should be considered when principal increases the CEO short-term performance share and long-term stock ownership incentive. Along with the development of enterprise, the effectiveness of CEO material incentive decreases, and the material incentive barely substitute the immaterial incentive. Principal needs to pay more focus on CEO immaterial incentive. This study enriches the extant literature by contributing implications to combination of incentive mechanisms for marketization-recruited CEOs in state-owned enterprises.