Abstract: This paper systematically investigates the influence of the disputed factor, i.e., the issue of executive excess compensation, on corporate debt financing and its action mechanism, as well as the moderating effect of such factors as external institutional environment and internal governance mechanism on the relationship between the two. The findings show that in the state-owned holding enterprises the excess executive compensation is negatively correlated with the level of corporate debt financing significantly. The action mechanism of excess compensation is that due to the existence of internal control problem, there are salary manipulation phenomena by the executives in state-owned enterprises. There is non-incentive-linked upside-down relationship between the excess compensation grabbed and corporate performance, but the governance effect played by corporate debt has significantly enhanced the sensitivity between executive compensation and performance, and improved the difficulty of manipulating salaries by executives. This indicates that the relationship between the two matches the salary-defense hypothesis in state holding enterprises, namely, the executives with higher excess compensation tend to accept the financing strategy of reducing debt financing while increasing commercial credit, so as to carry out legitimacy defense for their seeking excess compensations. But there is no evidence showing that such a phenomenon exists in non state-owned holding enterprises. Further study also finds that some measures can effectively inhibit the irrational intervention of executives with excess compensation on debt financing decisions in state-owned holding enterprises, including the development of the external formal institution (degree of marketization) and the informal institution (trust environment) environment, the enhancement of the independence of the board of directors, and the improvement of the internal governance mechanism concerning the shareholding ratio of the management.

Key words: excess compensation; debt financing; salary manipulation