- Original authors / creators
- Peiqiong Wang; Xianhua Zhang; Taozhi Wang; Zilu Wan
- Original publication
- PLOS ONE · Public Library of Science · 2023-09-08
- License & retained notices
- CC BY 4.0
© 2023 Wang et al
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https://creativecommons.org/licenses/by/4.0/This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Article-specific license URL: https://creativecommons.org/licenses/by/4.0/ - Edition changes
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- Evidence limits
- Adjacent research, not a directly sampled family-office study. Applicability to a family office requires separate assessment. The management of a company is a composite of distinct rational individuals. The unilateral appropriation of a company’s rights by a manager is detrimental to the legitimate rights of other managers, and generates conflicts of interest within the management, as Ni X notes [26]. This article contends that the “Salary Limitation Order” has a greater impact on cash holdings in companies with stronger management supervision capabilities as compared to those with weaker ones. This is because weaker management supervision leads to less conspicuous internal conflicts of interest, and individual managers’ self-serving behavior will not be impeded or curtailed by other managers. Thus, even if the “Salary Limitation Order” is enforced, management in these companies will not be wholly compliant with regulations or make efforts to diminish their cash holdings. Conversely, companies with stronger management supervision capabilities experience a substantial reduction in agency costs and conflicts within the organization, when compared to those with weaker management supervision or poor organizational structures. Therefore, they are inclined to hold less cash. Therefore, when the “Salary Limitation Order” is implemented, it is expected that the internal governance level of executives in companies with stronger management supervision capabilities will improve, and they will be more prone to reduce their cash holdings [51]. Consequently, in companies with differing management supervision capabilities, this article anticipates that those with stronger supervision will considerably curtail their cash holdings. Asymmetric information represents one of the significant factors that influence agency problems, and the retention of excessive cash by management for on-the-job consumption constitutes a classic example of moral hazard. In companies with lower levels of information asymmetry, the magnitude of agency conflicts may be smaller, and the efficacy of corporate governance mechanisms may be greater. The present article posits that, compared to companies with higher levels of information asymmetry, the influence of the "Salary Limitation Order" on cash holdings is more pronounced in companies with lower levels of information asymmetry. This is because companies with lower levels of information asymmetry tend to have less severe agency problems, which makes the governance mechanisms of the company more effective. When it comes to the governance of salary control, effective disclosure of management compensation levels can help reduce information asymmetry. As users of financial statement information, shareholders can also gain a comprehensive understanding of the company’s compensation structure, which further reduces agency costs. Consequently, the reduction in cash holdings caused by salary control will be more significant [52]. Thus, the impact of the "Salary Limitation Order" on cash holdings varies depending on the level of information asymmetry present in different companies. The present article anticipates that companies with lower levels of information asymmetry will experience a more significant reduction in cash holdings. This paper employs the modified Jones model to compute the extent of information asymmetry pertaining to manipulative accruals profitability measures. Specifically, annual and industry-specific regressions are conducted using the model specified in TAi,tAsseti,t−1=α11Asseti,t−1+α2ΔREVi,tAsseti,t−1+α3PPEi,tAsseti,t−1+εi,t Payroll regulation considerably affects SOEs’ cash holdings, according to the findings of this study. This conclusion was maintained after utilizing the parallel trend test, replacing the experimental group, and using the PSM-DID approach for robustness testing. Agency expenses have a limited mediating role in the regulation of compensation and corporate cash holdings. According to heterogeneity analysis, the sample with the best internal control, the most effective management monitoring, and the least information asymmetry had the greatest impact of compensation legislation on corporate cash holdings. These results imply that, when seen from many angles, the effect of "Salary Limitation Order" on corporate cash holdings is still relevant.
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