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Independent directors, non-controlling directors, and executive pay-for-performance sensitivity: Evidence from Chinese non-state owned enterprises

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  • Zhou, Fangzhao
  • Fan, Yunqi
  • An, Yunbi
  • Zhong, Ligang

Abstract

We investigate the monitoring effect of different types of board directors on executive pay-for-performance sensitivity in Chinese non-state owned enterprises (non-SOEs). We find that the board representation of non-controlling shareholders has a positive impact on executive pay-for-performance sensitivity, while independent directors have a negative impact on pay-for-performance sensitivity. We further find that the positive effect of non-controlling directors is mediated by the ownership level of non-controlling shareholders, and by the controlling shareholder-manager duality. Our empirical evidence suggests that non-controlling directors have a monitoring effect in Chinese non-SOEs, and independent directors do not. Finally, we document that when non-controlling shareholders have relatively high ownership, non-controlling directors are better able to monitor firms' operations, which in turn leads to better firm performance.

Suggested Citation

  • Zhou, Fangzhao & Fan, Yunqi & An, Yunbi & Zhong, Ligang, 2017. "Independent directors, non-controlling directors, and executive pay-for-performance sensitivity: Evidence from Chinese non-state owned enterprises," Pacific-Basin Finance Journal, Elsevier, vol. 43(C), pages 55-71.
    • Handle: RePEc:eee:pacfin:v:43:y:2017:i:c:p:55-71
    DOI: 10.1016/j.pacfin.2017.02.003
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