Managerial power theory, tournament theory, and executive pay in China
AbstractIn this paper, we test two models of executive pay that have not received much attention in research on Chinese listed companies: managerial power theory and tournament theory. We find that structural power (executive share ownership) and prestige power (executive education) are significantly positively related to executive remuneration, and political power (Executive/Party Secretary duality) positively and weakly related to executive remuneration. We also find that executive directors' organization level (as reflected in executive pay level for each of the three highest paid executives) is positively related to executive remuneration and the relationship is convex, and negatively related to the interaction between executive directors' organization level and government ownership. Tournament prize (executive pay) is not related to the number of contestants in the tournament and is negatively related to the interaction term between number of contestants and government ownership. Finally, earnings per share (EPS) as a measure of firm performance is positively related to the pay gap between contestants and negatively related to the interaction term between pay gap and government ownership. We explore the implications of these findings for reforming corporate governance in China.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Corporate Finance.
Volume (Year): 17 (2011)
Issue (Month): 4 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jcorpfin
Managerial power theory Tournament theory Executive pay Organization levels;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- McConnell, John J. & Servaes, Henri, 1995. "Equity ownership and the two faces of debt," Journal of Financial Economics, Elsevier, vol. 39(1), pages 131-157, September.
- Edward P. Lazear, 1995.
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262121883, June.
- Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1993. "Top Executive Pay: Tournament or Teamwork?," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 606-28, October.
- Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
- Sherwin Rosen, 1985.
"Prizes and Incentives in Elimination Tournaments,"
NBER Working Papers
1668, National Bureau of Economic Research, Inc.
- Li, Donghui & Moshirian, Fariborz & Nguyen, Pascal & Tan, Liwen, 2007. "Corporate governance or globalization: What determines CEO compensation in China?," Research in International Business and Finance, Elsevier, vol. 21(1), pages 32-49, January.
- Mitchell A. Petersen, 2009.
"Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches,"
Review of Financial Studies,
Society for Financial Studies, vol. 22(1), pages 435-480, January.
- Mitchell A. Petersen, 2005. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," NBER Working Papers 11280, National Bureau of Economic Research, Inc.
- Cheung, Yan-Leung & Stouraitis, Aris & Wong, Anita W.S., 2005. "Ownership concentration and executive compensation in closely held firms: Evidence from Hong Kong," Journal of Empirical Finance, Elsevier, vol. 12(4), pages 511-532, September.
- Kato, Takao & Long, Cheryl, 2008.
"Tournaments and Managerial Incentives in China's Listed Firms: New Evidence,"
IZA Discussion Papers
3730, Institute for the Study of Labor (IZA).
- Kato, Takao & Long, Cheryl, 2011. "Tournaments and managerial incentives in China's listed firms: New evidence," China Economic Review, Elsevier, vol. 22(1), pages 1-10, March.
- Leone, Andrew J. & Wu, Joanna Shuang & Zimmerman, Jerold L., 2006. "Asymmetric sensitivity of CEO cash compensation to stock returns," Journal of Accounting and Economics, Elsevier, vol. 42(1-2), pages 167-192, October.
- Lang, Larry H P & Stulz, Rene M, 1994.
"Tobin's q, Corporate Diversification, and Firm Performance,"
Journal of Political Economy,
University of Chicago Press, vol. 102(6), pages 1248-80, December.
- Larry H.P. Lang & Rene M. Stulz, 1993. "Tobin's Q, Corporate Diversification and Firm Performance," NBER Working Papers 4376, National Bureau of Economic Research, Inc.
- Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-80, April.
- Ryan, Harley Jr. & Wiggins, Roy III, 2001. "The influence of firm- and manager-specific characteristics on the structure of executive compensation," Journal of Corporate Finance, Elsevier, vol. 7(2), pages 101-123, June.
- Mehran, Hamid, 1995. "Executive compensation structure, ownership, and firm performance," Journal of Financial Economics, Elsevier, vol. 38(2), pages 163-184, June.
- Himmelberg, C.P. & Hubbard, R.G. & Palia, D., 1997.
"Understanding the Determinants of Mangerial Ownership and the Link Between Ownership and Performance,"
97-21, Columbia - Graduate School of Business.
- Himmelberg, Charles P. & Hubbard, R. Glenn & Palia, Darius, 1999. "Understanding the determinants of managerial ownership and the link between ownership and performance," Journal of Financial Economics, Elsevier, vol. 53(3), pages 353-384, September.
- Charles P. Himmelberg & R. Glenn Hubbard & Darius Palia, 2000. "Understanding the Determinants of Managerial Ownership and the Link Between Ownership and Performance," NBER Working Papers 7209, National Bureau of Economic Research, Inc.
- Sloan, Richard G., 1993. "Accounting earnings and top executive compensation," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 55-100, April.
- Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
- Chung, Kee H. & Pruitt, Stephen W., 1996. "Executive ownership, corporate value, and executive compensation: A unifying framework," Journal of Banking & Finance, Elsevier, vol. 20(7), pages 1135-1159, August.
- McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
- Fan, Joseph P.H. & Wong, T.J. & Zhang, Tianyu, 2007. "Politically connected CEOs, corporate governance, and Post-IPO performance of China's newly partially privatized firms," Journal of Financial Economics, Elsevier, vol. 84(2), pages 330-357, May.
- Short, Helen & Keasey, Kevin, 1999. "Managerial ownership and the performance of firms: Evidence from the UK," Journal of Corporate Finance, Elsevier, vol. 5(1), pages 79-101, March.
- Lazear, Edward P & Rosen, Sherwin, 1981.
"Rank-Order Tournaments as Optimum Labor Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 89(5), pages 841-64, October.
- Denis, David J. & Sarin, Atulya, 1999. "Ownership and board structures in publicly traded corporations," Journal of Financial Economics, Elsevier, vol. 52(2), pages 187-223, May.
- Kole, Stacey R., 1995. "Measuring managerial equity ownership: a comparison of sources of ownership data," Journal of Corporate Finance, Elsevier, vol. 1(3-4), pages 413-435, April.
- Fisher, Franklin M & McGowan, John J, 1983. "On the Misuse of Accounting Rates of Return to Infer Monopoly Profits," American Economic Review, American Economic Association, vol. 73(1), pages 82-97, March.
- Xianming Zhou, 2000. "CEO pay, firm size, and corporate performance: evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 213-251, February.
- Lam, Kevin C.K. & McGuinness, Paul B. & Vieito, João Paulo, 2013. "CEO gender, executive compensation and firm performance in Chinese‐listed enterprises," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 1136-1159.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.