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Executive Compensation, Firm Performance, and Corporate Governance in China: Evidence from Firms Listed in the Shanghai and Shenzhen Stock Exchanges Author info | Abstract | Publisher info | Download info | Related research | Statistics Takao Kato () (Colgate University, Columbia University and IZA Bonn)
Cheryl Long () (Colgate University, Stanford University and University of Electronic Science and Technology of China)
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This paper provides evidence on how executive compensation relates to firm performance in listed firms in China. Using comprehensive financial and accounting data on China’s listed firms from 1998 to 2002, augmented by unique data on executive compensation and ownership structure, we find for the first time statistically significant sensitivities and elasticities of annual cash compensation (salary and bonus) for top executives with respect to shareholder value in China. In addition, sales growth is shown to be significantly linked to executive compensation and that Chinese executives are penalized for making negative profit although they are neither penalized for declining profit nor rewarded for rising profit insofar as it is positive. Perhaps more importantly, we find that ownership structure of China’s listed firms has important effects on pay-performance link in these firms. Specifically state ownership of China’s listed firms is weakening pay-performance link for top managers and thus possibly making China’s listed firms less effective in solving the agency problem. As such, ownership restructuring may be needed for China to successfully transform its SOEs to efficient modernized corporations and reform its overall economy.
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number
1767.
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Length: 46 pages
Date of creation: Sep 2005Date of revision:
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Keywords: executive compensation firm performance corporate governance ownership structure China and transition economies Other versions of this item:
Article Kato, Takao & Long, Cheryl, 2006.
"Executive Compensation, Firm Performance, and Corporate Governance in China: Evidence from Firms Listed in the Shanghai and Shenzhen Stock Exchanges ,"
Economic Development and Cultural Change ,
University of Chicago Press, vol. 54(4), pages 945-83, July.
Find related papers by JEL classification: M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment G30 - Financial Economics - - Corporate Finance and Governance - - - General O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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Galina Hale & Cheryl Long, 2006.
"FDI spillovers and firm ownership in China: labor markets and backward linkages ,"
Working Paper Series
2006-25, Federal Reserve Bank of San Francisco.
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