Advanced Search
MyIDEAS: Login

CEO Incentives in Chinese State-Controlled Firms

Contents:

Author Info

  • Johansson, Anders C.

    ()
    (Stockholm China Economic Research Institute)

  • Feng, Xunan

    (Shanghai University)

Abstract

This paper investigates CEO incentives in Chinese state-controlled firms. We find that firm performance has a positive effect on CEO compensation. We also find that firm performance is positively associated with CEO promotion and negatively associated with CEO turnover. CEOs for state-controlled firms thus face significant incentives, not only in monetary form, but also in terms of career prospects. These results suggest that the CEO labor market in the Chinese state sector exhibits characteristics similar to those of managerial labor markets in developed countries, at least during our sample period. Moreover, we show that local institutions have a significant impact on the relationship between CEO incentives and firm performance, with performance having a larger effect on CEO compensation, promotion and turnover in regions characterized by stronger institutions. Overall, our results demonstrate that firm performance is associated with CEO incentives also for state-controlled firms in China, suggesting that there is a functioning labor market for top managers in the Chinese state sector.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://swopec.hhs.se/hascer/papers/hascer2013-027.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Stockholm China Economic Research Institute, Stockholm School of Economics in its series Working Paper Series with number 2013-27.

as in new window
Length: 57 pages
Date of creation: 06 Sep 2013
Date of revision:
Handle: RePEc:hhs:hascer:2013-027

Contact details of provider:
Postal: Stockholm China Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-8-736 90 00
Fax: +46-8-31 81 86
Web page: http://www.hhs.se/SCERI/
More information through EDIRC

Related research

Keywords: State-controlled firms; Managerial labor market; Performance; CEO compensation; CEO promotion; CEO turnover; China;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  2. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  3. Kato, Takao & Long, Cheryl, 2008. "Tournaments and Managerial Incentives in China's Listed Firms: New Evidence," IZA Discussion Papers 3730, Institute for the Study of Labor (IZA).
  4. Chan, Kalok & Menkveld, Albert J. & Yang, Zhishu, 2007. "The informativeness of domestic and foreign investors' stock trades: Evidence from the perfectly segmented Chinese market," Journal of Financial Markets, Elsevier, vol. 10(4), pages 391-415, November.
  5. John D. Lyon & Brad M. Barber & Chih-Ling Tsai, 1999. "Improved Methods for Tests of Long-Run Abnormal Stock Returns," Journal of Finance, American Finance Association, vol. 54(1), pages 165-201, 02.
  6. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
  7. Marko Tervio, 2008. "The Difference That CEOs Make: An Assignment Model Approach," American Economic Review, American Economic Association, vol. 98(3), pages 642-68, June.
  8. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April.
  9. Bai, Chong-En & Xu, Lixin Colin, 2005. "Incentives for CEOs with multitasks: Evidence from Chinese state-owned enterprises," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 517-539, September.
  10. Kato, Takao & Kim, Woochan & Lee, Ju Ho, 2007. "Executive compensation, firm performance, and Chaebols in Korea: Evidence from new panel data," Pacific-Basin Finance Journal, Elsevier, vol. 15(1), pages 36-55, January.
  11. Firth, Michael & Fung, Peter M.Y. & Rui, Oliver M., 2006. "Corporate performance and CEO compensation in China," Journal of Corporate Finance, Elsevier, vol. 12(4), pages 693-714, September.
  12. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  13. Jianping Mei & Jose A. Scheinkman & Wei Xiong, 2009. "Speculative Trading and Stock Prices: Evidence from Chinese A-B Share Premia," Annals of Economics and Finance, Society for AEF, vol. 10(2), pages 225-255, November.
  14. Carola Frydman & Raven E. Saks, 2010. "Executive Compensation: A New View from a Long-Term Perspective, 1936--2005," Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 2099-2138.
  15. Feng, Xunan & Johansson, Anders C. & Zhang, Tianyu, 2011. "Political Participation and Entrepreneurial Initial Public Offerings in China," Working Paper Series 2011-17, China Economic Research Center, Stockholm School of Economics.
  16. Kaplan, Steven N, 1994. "Top Executives, Turnover, and Firm Performance in Germany," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(1), pages 142-59, April.
  17. Chongwoo Choe & Xiangkang Yin, 1998. "Contract Management Responsibility System and Profit Incentives in China's State-Owned Enterprises," Working Papers 1998.06, School of Economics, La Trobe University.
  18. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
  19. Sherwin Rosen, 1985. "Prizes and Incentives in Elimination Tournaments," NBER Working Papers 1668, National Bureau of Economic Research, Inc.
  20. 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.
  21. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  22. Lin, Justin Yifu & Li, Zhiyun, 2008. "Policy burden, privatization and soft budget constraint," Journal of Comparative Economics, Elsevier, vol. 36(1), pages 90-102, March.
  23. Lin, Justin Yifu & Cai, Fang & Li, Zhou, 1998. "Competition, Policy Burdens, and State-Owned Enterprise Reform," American Economic Review, American Economic Association, vol. 88(2), pages 422-27, May.
  24. Taye Mengistae & Lixin Colin Xu, 2004. "Agency Theory and Executive Compensation: The Case of Chinese State-Owned Enterprises," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 615-638, July.
  25. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  26. Kai Li & Dale Griffin & Heng Yue & Longkai Zhao, 2011. "National culture and capital structure decisions: Evidence from foreign joint ventures in China," Journal of International Business Studies, Palgrave Macmillan, vol. 42(4), pages 477-503, May.
  27. George P. Baker & Brian J. Hall, 2004. "CEO Incentives and Firm Size," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 767-798, October.
  28. Conyon, M.J. & Leech, D., 1993. "Top Pay, Company Performance and Corporate Governance," The Warwick Economics Research Paper Series (TWERPS) 410, University of Warwick, Department of Economics.
  29. Firth, Michael & Leung, Tak Yan & Rui, Oliver M., 2010. "Justifying top management pay in a transitional economy," Journal of Empirical Finance, Elsevier, vol. 17(5), pages 852-866, December.
  30. Xavier Gabaix & Augustin Landier, 2008. "Why Has CEO Pay Increased So Much?," The Quarterly Journal of Economics, MIT Press, vol. 123(1), pages 49-100, 02.
  31. Chen, Gongmeng & Firth, Michael & Xu, Liping, 2009. "Does the type of ownership control matter? Evidence from China's listed companies," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 171-181, January.
  32. Dwight H. Perkins, 1994. "Completing China's Move to the Market," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 23-46, Spring.
  33. Kato, Takao & Long, Cheryl, 2005. "Executive Compensation, Firm Performance, and Corporate Governance in China: Evidence from Firms Listed in the Shanghai and Shenzhen Stock Exchanges," IZA Discussion Papers 1767, Institute for the Study of Labor (IZA).
  34. Kato, Takao & Long, Cheryl, 2006. "CEO turnover, firm performance, and enterprise reform in China: Evidence from micro data," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 796-817, December.
  35. Brunello, Giorgio & Graziano, Clara & Parigi, Bruno M., 2003. "CEO turnover in insider-dominated boards: The Italian case," Journal of Banking & Finance, Elsevier, vol. 27(6), pages 1027-1051, June.
  36. Renneboog, L.D.R., 1999. "Ownership, Managerial Control and the Governance of Companies Listed on the Brussels Stock Exchange," Discussion Paper 1999-63, Tilburg University, Center for Economic Research.
  37. Rick Audas & Stephen Dobson & John Goddard, 1999. "Organizational performance and managerial turnover," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(6), pages 305-318.
  38. Kalok Chan & Albert J. Menkveld & Zhishu Yang, 2008. "Information Asymmetry and Asset Prices: Evidence from the China Foreign Share Discount," Journal of Finance, American Finance Association, vol. 63(1), pages 159-196, 02.
  39. Kaplan, Steven N, 1994. "Top Executive Rewards and Firm Performance: A Comparison of Japan and the United States," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 510-46, June.
  40. Mehran, Hamid, 1995. "Executive compensation structure, ownership, and firm performance," Journal of Financial Economics, Elsevier, vol. 38(2), pages 163-184, June.
  41. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  42. Bai, Chong-En & Li, David D. & Tao, Zhigang & Wang, Yijiang, 2000. "A Multitask Theory of State Enterprise Reform," Journal of Comparative Economics, Elsevier, vol. 28(4), pages 716-738, December.
  43. Chong-En Bai & Jiangyong Lu & Zhigang Tao, 2006. "The Multitask Theory of State Enterprise Reform: Empirical Evidence from China," American Economic Review, American Economic Association, vol. 96(2), pages 353-357, May.
  44. Sung Wook Joh, 1999. "Strategic Managerial Incentive Compensation In Japan: Relative Performance Evaluation And Product Market Collusion," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 303-313, May.
  45. Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1993. "Top Executive Pay: Tournament or Teamwork?," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 606-28, October.
  46. Kim, Yungsan, 1996. "Long-Term Firm Performance and Chief Executive Turnover: An Empirical Study of the Dynamics," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(2), pages 480-96, October.
  47. Scully, Gerald W, 1988. "The Institutional Framework and Economic Development," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 652-62, June.
  48. Ian Gregory-Smith & Steve Thompson & PeterW. Wright, 2009. "Fired or Retired? A Competing Risks Analysis of Chief Executive Turnover," Economic Journal, Royal Economic Society, vol. 119(536), pages 463-481, 03.
  49. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  50. Scott Schaefer, 1998. "The Dependence Of Pay--Performance Sensitivity On The Size Of The Firm," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 436-443, August.
  51. 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.
  52. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "Investor Protection and Corporate Governance," Working Paper 19455, Harvard University OpenScholar.
  53. Zhou, Xianming, 1999. "Executive compensation and managerial incentives: A comparison between Canada and the United States1," Journal of Corporate Finance, Elsevier, vol. 5(3), pages 277-301, September.
  54. Boettke, Peter J. & Coyne, Christopher J., 2009. "Context Matters: Institutions and Entrepreneurship," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 5(3), pages 135-209, March.
  55. Volpin, Paolo F., 2002. "Governance with poor investor protection: evidence from top executive turnover in Italy," Journal of Financial Economics, Elsevier, vol. 64(1), pages 61-90, April.
  56. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
  57. Brickley, James A., 2003. "Empirical research on CEO turnover and firm-performance: a discussion," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 227-233, December.
  58. Michael Firth & Peter M. Y. Fung & Oliver M. Rui, 2006. "Firm Performance, Governance Structure, and Top Management Turnover in a Transitional Economy," Journal of Management Studies, Wiley Blackwell, vol. 43(6), pages 1289-1330, 09.
  59. Berggren, Niclas, 2003. "The Benefits of Economic Freedom: A Survey," Ratio Working Papers 4, The Ratio Institute.
  60. Andrei Shleifer, 2009. "The Age of Milton Friedman," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 123-35, March.
  61. Liao, Guanmin & Chen, Xin & Jing, Xin & Sun, Jianfei, 2009. "Policy burdens, firm performance, and management turnover," China Economic Review, Elsevier, vol. 20(1), pages 15-28, March.
  62. Bognanno, Michael L, 2001. "Corporate Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 290-315, April.
  63. Guofu Tan & Justin Yifu Lin, 1999. "Policy Burdens, Accountability, and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 89(2), pages 426-431, May.
  64. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
  65. Kato, Takao & Long, Cheryl, 2006. "CEO Turnover, Firm Performance and Enterprise Reform in China: Evidence from New Micro Data," IZA Discussion Papers 1914, Institute for the Study of Labor (IZA).
  66. Firth, Michael & Fung, Peter M.Y. & Rui, Oliver M., 2007. "How ownership and corporate governance influence chief executive pay in China's listed firms," Journal of Business Research, Elsevier, vol. 60(7), pages 776-785, July.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:hascer:2013-027. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Malin Nilsson).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.