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Managerial power theory, tournament theory, and executive pay in China

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  • Chen, Jing
  • Ezzamel, Mahmoud
  • Cai, Ziming

Abstract

In this paper, we test two models of executive pay that have not received much attention in research on Chinese listed companies: managerial power theory and tournament theory. We find that structural power (executive share ownership) and prestige power (executive education) are significantly positively related to executive remuneration, and political power (Executive/Party Secretary duality) positively and weakly related to executive remuneration. We also find that executive directors' organization level (as reflected in executive pay level for each of the three highest paid executives) is positively related to executive remuneration and the relationship is convex, and negatively related to the interaction between executive directors' organization level and government ownership. Tournament prize (executive pay) is not related to the number of contestants in the tournament and is negatively related to the interaction term between number of contestants and government ownership. Finally, earnings per share (EPS) as a measure of firm performance is positively related to the pay gap between contestants and negatively related to the interaction term between pay gap and government ownership. We explore the implications of these findings for reforming corporate governance in China.

Suggested Citation

  • Chen, Jing & Ezzamel, Mahmoud & Cai, Ziming, 2011. "Managerial power theory, tournament theory, and executive pay in China," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1176-1199, September.
  • Handle: RePEc:eee:corfin:v:17:y:2011:i:4:p:1176-1199
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Paul McGuinness & Kevin Lam & João Vieito, 2015. "Gender and other major board characteristics in China: Explaining corporate dividend policy and governance," Asia Pacific Journal of Management, Springer, pages 989-1038.
    2. Tan, Monica & Liu, Bin, 2016. "CEO's managerial power, board committee memberships and idiosyncratic volatility," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 21-30.
    3. Haß, Lars Helge & Müller, Maximilian A. & Vergauwe, Skrålan, 2015. "Tournament incentives and corporate fraud," Journal of Corporate Finance, Elsevier, pages 251-267.
    4. repec:eee:jbfina:v:84:y:2017:i:c:p:152-165 is not listed on IDEAS
    5. repec:eee:pacfin:v:46:y:2017:i:pa:p:124-140 is not listed on IDEAS
    6. Yu, Mei & Ashton, John K., 2015. "Board leadership structure for Chinese public listed companies," China Economic Review, Elsevier, vol. 34(C), pages 236-248.
    7. Chou, Hsin-I & Chung, Huimin & Yin, Xiangkang, 2013. "Attendance of board meetings and company performance: Evidence from Taiwan," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4157-4171.
    8. Liang, Hao & Renneboog, Luc & Sun, Sunny Li, 2015. "The political determinants of executive compensation: Evidence from an emerging economy," Emerging Markets Review, Elsevier, vol. 25(C), pages 69-91.
    9. Lerong He & Junxiong Fang, 2016. "Subnational institutional contingencies and executive pay dispersion," Asia Pacific Journal of Management, Springer, pages 371-410.
    10. Lars Helge Haß & Sofia Johan & Denis Schweizer, 2016. "Is Corporate Governance in China Related to Performance Persistence?," Journal of Business Ethics, Springer, pages 575-592.
    11. Lam, Kevin C.K. & McGuinness, Paul B. & Vieito, João Paulo, 2013. "CEO gender, executive compensation and firm performance in Chinese‐listed enterprises," Pacific-Basin Finance Journal, Elsevier, pages 1136-1159.
    12. Wei Huang & Agyenim Boateng & Alexander Newman, 2016. "Capital structure of Chinese listed SMEs: an agency theory perspective," Small Business Economics, Springer, pages 535-550.
    13. repec:spr:rvmgts:v:11:y:2017:i:4:d:10.1007_s11846-016-0202-3 is not listed on IDEAS
    14. Hu, Fang & Pan, Xiaofei & Tian, Gary, 2013. "Does CEO pay dispersion matter in an emerging market? Evidence from China's listed firms," Pacific-Basin Finance Journal, Elsevier, pages 235-255.
    15. Słomka-Gołębiowska, Agnieszka & Urbanek, Piotr, 2016. "Corporate boards, large blockholders and executive compensation in banks: Evidence from Poland," Emerging Markets Review, Elsevier, vol. 28(C), pages 203-220.
    16. Yuan, Rongli & Sun, Jian & Cao, Feng, 2016. "Directors' and officers' liability insurance and stock price crash risk," Journal of Corporate Finance, Elsevier, pages 173-192.
    17. Peiyi Yu & Bac Luu, 2016. "Bank performance and executive pay: tournament or teamwork," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 607-643, October.

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