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Executive Compensation and Corporate Fraud in China

Author

Listed:
  • Martin J. Conyon

    (Lancaster University
    The Wharton School, University of Pennsylvania)

  • Lerong He

    (College at Brockport, State University of New York)

Abstract

This study investigates the relation between CEO compensation and corporate fraud in China. We document a significantly negative correlation between CEO compensation and corporate fraud using data on publicly traded firms between 2005 and 2010. Our findings are consistent with the hypothesis that firms penalize CEOs for fraud by lowering their pay. We also find that CEO compensation is lower in firms that commit more severe frauds. Panel data fixed effects and propensity score methods are used to demonstrate these effects. Our results also indicate that corporate governance mechanisms influence the magnitude of punishment. We find that CEOs of privately controlled firms, firms that split the posts of CEO and chairman, and CEOs of firms located in developed regions suffer larger compensation penalties for committing financial fraud. Finally, we show that CEOs at firms that commit fraud are more likely to be replaced compared to those at non-fraud firms.

Suggested Citation

  • Martin J. Conyon & Lerong He, 2016. "Executive Compensation and Corporate Fraud in China," Journal of Business Ethics, Springer, vol. 134(4), pages 669-691, April.
    • Handle: RePEc:kap:jbuset:v:134:y:2016:i:4:d:10.1007_s10551-014-2390-6
    DOI: 10.1007/s10551-014-2390-6
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    References listed on IDEAS

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