Abstract: Corporate internal incentive mechanisms and supervision mechanisms can play a non-linear role of governance. This paper employs micro-data of Chinese listed companies to test the non-linear governance effects of internal governance mechanisms empirically, and explores the possible impact of firm heterogeneity. The results show that: both the two incentive mechanisms of implicit and explicit executive compensation have a significant inverted U shaped characteristic with firm performance; shareholding ratio of the largest shareholder and the proportion of independent director have a significant U shaped and inverted U shaped characteristic with firm performance, respectively; both the size of board director and the size of board supervisor have just a linear negative correlation with firm performance, and both mechanisms′ non-linear governance effect are not obvious, while dual job of chairman and general manager shows a significantly positive correlation with firm performance;firm heterogeneities may affect the non-linear governance effects significantly. These results validated the non-linear governance effects of internal governance mechanism, and can provide some reference for improving the internal governance of enterprises.

Key words: internal governance mechanism, non-linear governance effect, firm heterogeneity, inverted U shaped characteristic