Restricting CEO pay backfires: Evidence from China

Bae, Kee‐Hong; Gong, Zhaoran; Tong, Wei

doi:10.1111/jbfa.12741

Business Fin & Account

2023

DOI: 10.1111/jbfa.12741

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Restricting CEO pay backfires: Evidence from China

Kee‐Hong Bae

Zhaoran Gong

Wei Tong

Abstract: Using the pay restriction imposed on CEOs of centrally administered state‐owned enterprises (CSOEs) in China in 2009, we study the effects of limiting CEO pay. Compared with CEOs of firms not subject to the restriction, the CEOs of CSOEs experienced a significant pay cut. In response to the pay cut, CEOs increased the consumption of perks and siphoned off firm resources for their own benefit. Pay‐performance sensitivity for these firms also significantly decreases. The performance of these firms dropped follow… Show more

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2024

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Cited by 6 publications

References 41 publications

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CEO industry tournament, investor attention, and company value

Jiang,

Deng

2024

Manage Decis Econ

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Based on the emerging capital market of China, this paper uses the data of Chinese listed companies to test the market value management behavior of CEOs under the incentive of industry tournaments. The empirical results show that the CEOs industry tournament improves the value of listed companies by attracting investor attention. In the test of the incentive mechanism of the industry tournament, we find that in the samples with lower industry mobility and state ownership and where the CEO is new, retiring, or a founder, the industry pay gap has a weaker incentive effect on the CEO. In the test of the CEOs' efforts to manage investor attention, this paper finds that CEOs are incentivized to disclose more financial and nonfinancial information, increase advertising spending, and hold more shareholder meetings. Discussed with other incentives, compensation incentives and equity incentives enhance the motivational role of industry championships for CEOs. This study explores in depth the possible impact of industry tournaments on CEO behavioral decisions and also provides a new perspective for corporate to manage investor attention. This provides important reference value for corporate CEO compensation, information disclosure supervision, and investor decision‐making.

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CEO industry tournament, investor attention, and company value

Jiang,

Deng

2024

Manage Decis Econ

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Digitalize and stabilize: corporate digital transformation and performance volatility

Wang,

Li,

Wang

et al. 2024

Applied Economics

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Non‐controlling shareholder activism and executive pay‐for‐performance sensitivity: Evidence from the over‐appointment of directors in the Chinese market

Li,

Wang,

Zheng

et al. 2024

Accounting & Finance

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We examine the impact of non‐controlling shareholder activism on the effectiveness of executive compensation contract, particularly focusing on the over‐appointment of directors in A‐share firms listed on the Shanghai and Shenzhen Stock Exchanges from 2008 to 2021. We discover that such over‐appointments by non‐controlling shareholders significantly promote executive pay‐for‐performance sensitivity of these enterprises. This effect becomes even more pronounced in enterprises that display a weaker government intervention and media attention. Further mechanism analysis indicates that over‐appointments improve the effectiveness of compensation contract by improving the quality of accounting information and restraining executives' opportunistic behaviour. Our further research finds that over‐appointments by non‐controlling shareholders can effectively reduce executive compensation stickiness, while significantly increasing the absolute salary level of executives. There is no evidence to suggest that independent directors increase executive pay‐for‐performance sensitivity.

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Restricting CEO pay backfires: Evidence from China

Cited by 6 publications

References 41 publications

CEO industry tournament, investor attention, and company value

CEO industry tournament, investor attention, and company value

Digitalize and stabilize: corporate digital transformation and performance volatility

Non‐controlling shareholder activism and executive pay‐for‐performance sensitivity: Evidence from the over‐appointment of directors in the Chinese market

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