Salary incentives, internal control, and firm's total factor productivity

Abstract

Using data from Chinese A-share listed state-owned enterprises from 2012 to 2022, this study systematically analyzes the impact mechanism of executive compensation incentives and equity incentives on enterprise total factor productivity (TFP). Furthermore, it examines the mediating role of internal control and the moderating effect of managerial myopia. Findings indicate that compensation and equity incentives significantly improve the TFP of state-owned enterprises, demonstrating their critical function as a primary means of improving business operational efficiency. Internal control serves as a partial mediator in this process, boosting the effectiveness of incentive programs. However, managerial myopia harms the positive effects of compensation and equity incentives. This study offers a unique perspective for understanding corporate incentive mechanisms and their influencing factors.