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Relational Incentives in Chinese Family Firms

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  • Jiancai Pi

    (Department of Economics, School of Business, Nanjing University, P. R. China)

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    Abstract

    This paper mainly discusses the choice of managerial compensation contracts in Chinese family firms. Relation or guanxi in Chinese language is an important factor that should be considered because it can bring the shirking cost to the relation-based manager and the caring cost to the owner under Chinese-style differential mode of association (“chaxu geju”). Our theoretical analysis shows that under some conditions it is optimal for the owner to choose the efficiency wage contract, and that under other conditions it is optimal for the owner to choose the share-based incentive contract.

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    File URL: http://www.panoeconomicus.rs/casopis/2011_4/05%20Jiancai%20Pi.pdf
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    Bibliographic Info

    Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

    Volume (Year): 58 (2011)
    Issue (Month): 4 (December)
    Pages: 511-524

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    Handle: RePEc:voj:journl:v:58:y:2011:i:3:p:511-524

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    Web page: http://www.panoeconomicus.rs/

    Related research

    Keywords: Managerial compensation; Efficiency wage contract; Share-based incentive contract; Relation (Guanxi); Chinese family firm.;

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    1. Ronald A. Dye, 1986. "Optimal Monitoring Policies in Agencies," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 339-350, Autumn.
    2. Lucian A. Bebchuk & Michael S. Weisbach, 2009. "The State of Corporate Governance Research," NBER Working Papers 15537, National Bureau of Economic Research, Inc.
    3. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
    4. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
    5. Roger D. Congleton, 1989. "Monitoring Rent-Seeking Managers: Advantages of Diffuse Ownership," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 662-72, August.
    6. Strausz, Roland, 1997. "Delegation of Monitoring in a Principal-Agent Relationship," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 337-57, July.
    7. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer.
    8. Ellison, Glenn, 1994. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 567-88, July.
    9. Bengt Holmstrom, 1997. "Moral Hazard and Observability," Levine's Working Paper Archive 1205, David K. Levine.
    10. Avinash Dixit, 2001. "On Modes of Economic Governance," CESifo Working Paper Series 589, CESifo Group Munich.
    11. Bebchuk, Lucian A. & Fried, Jesse M., 2003. "Executive Compensation as an Agency Problem," Berkeley Olin Program in Law & Economics, Working Paper Series qt81q3136r, Berkeley Olin Program in Law & Economics.
    12. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-50, October.
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