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CEO Incentive Contracts in China: Why Does City Location Matter?

In: International Perspectives on Participation

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  • Alex Bryson
  • John Forth
  • Minghai Zhou

Abstract

CEO incentive contracts are commonplace in China but their incidence varies significantly across Chinese cities. We show that city and provincial policy experiments help explain this variance. We examine the role of two policy experiments: the use of Special Economic Zones (SEZs) to attract Foreign Direct Investment (FDI), and the privatisation of State-Owned Enterprises (SOEs). The introduction of SEZs is found to be uncorrelated with the prevalence of CEO incentive contracts. However, firms are more likely to use such contracts in areas that saw rapid SOE privatisation, irrespective of the firm’s own current ownership status and irrespective of the size of the SOE sector in the late 1970s. The positive effect of privatisation is robust to various estimation techniques and model specifications. These findings suggest that domestic privatisation policies have been more influential than FDI in driving the expansion of incentive contracts in China.

Suggested Citation

  • Alex Bryson & John Forth & Minghai Zhou, 2014. "CEO Incentive Contracts in China: Why Does City Location Matter?," Advances in the Economic Analysis of Participatory & Labor-Managed Firms, in: International Perspectives on Participation, volume 15, pages 25-49, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aeapzz:s0885-333920140000015009
    DOI: 10.1108/S0885-333920140000015009
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    References listed on IDEAS

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    1. Stephen Gibbons & Henry G. Overman, 2012. "Mostly Pointless Spatial Econometrics?," Journal of Regional Science, Wiley Blackwell, vol. 52(2), pages 172-191, May.
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    More about this item

    Keywords

    Executive compensation; CEOs; privatisation; FDI; China; cities; G34; J31; J33; M12; M52; O16; P31;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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