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The political determinants of executive compensation: Evidence from an emerging economy

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  • Liang, Hao
  • Renneboog, Luc
  • Sun, Sunny Li

Abstract

In regulated economies, corporate governance mechanisms such as executive compensation are less driven by market-based forces but more subject to political influence. We study the political determinants of executive compensation for all listed Chinese firms in the context of an exogenous shock that removed market frictions in share-tradability. Under strong political constraints, state ownership reduced the managerial pay levels and increased pay-for-performance sensitivity (to asset-based benchmarks). Board independence and compensation committees do not curb managerial pay, and market-based factors do not have a significant influence. However, these effects reversed following the governance shock (removal of market frictions in share tradability).

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  • Liang, Hao & Renneboog, Luc & Sun, Sunny Li, 2015. "The political determinants of executive compensation: Evidence from an emerging economy," Emerging Markets Review, Elsevier, vol. 25(C), pages 69-91.
    • Handle: RePEc:eee:ememar:v:25:y:2015:i:c:p:69-91
    DOI: 10.1016/j.ememar.2015.04.008
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    More about this item

    Keywords

    Executive compensation; Political economy; State ownership; Market friction;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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