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

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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 rate at which state owned enterprises (SOEs) were privatised. CEO incentive contracts are negatively correlated with foreign ownership and with the introduction of FDI via SEZs. However, the SEZ effect disappears having accounted for the city-level composition of firms and executives. Rapid SOE privatisation is associated with higher city and firm-level adoption of CEO incentive contracts, irrespective of the firm's own current ownership status. The positive effect of privatisation is robust to various estimation techniques and model specifications.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1192.

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Date of creation: Feb 2013
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Handle: RePEc:cep:cepdps:dp1192

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Executive compensation; CEOs; privatisation; FDI; China; cities;

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  1. Alex Bryson & Rafael Gomez & Tobias Kretschmer & Paul Willman, 2007. "The diffusion of workplace voice and high-commitment human resource management practices in Britain, 1984–1998," Industrial and Corporate Change, Oxford University Press, vol. 16(3), pages 395-426, June.
  2. Groves, Theodore & Yongmiao Hong & John McMillan & Barry Naughton, 1995. "China's Evolving Managerial Labor Market," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 873-92, August.
  3. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  4. Alex Bryson & John Forth & Minghai Zhou, 2012. "What Do We Know About China's CEO's? Evidence from Across the Whole Economy," CEP Occasional Papers op31, Centre for Economic Performance, LSE.
  5. Groves, Theodore, et al, 1994. "Autonomy and Incentives in Chinese State Enterprises," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 183-209, February.
  6. Alex Bryson & John Forth & Minghai Zhou, 2012. "The CEO Labour Market in China's Public Listed Companies," CEP Discussion Papers dp1148, Centre for Economic Performance, LSE.
  7. Stephen Gibbons & Henry G. Overman, 2012. "Mostly Pointless Spatial Econometrics?," Journal of Regional Science, Wiley Blackwell, vol. 52(2), pages 172-191, 05.
  8. Chenggang Xu, 2011. "The Fundamental Institutions of China's Reforms and Development," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 1076-1151, December.
  9. Wang, Jin, 2013. "The economic impact of Special Economic Zones: Evidence from Chinese municipalities," Journal of Development Economics, Elsevier, vol. 101(C), pages 133-147.
  10. Dirk Willem te Velde, 2003. "Foreign Ownership, Microelectronic Technology and Skills: Evidence for British Establishments," National Institute Economic Review, National Institute of Economic and Social Research, vol. 185(1), pages 93-106, July.
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