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Restricting executive pay, growth incentives, and corporate M&As

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  • Lan, Tian
  • Pan, Luyao

Abstract

In 2014, China implemented a pay-restriction policy by imposing explicit quotas on direct pay and perks for top executives of China's state-owned enterprises (SOEs). We take advantage of this policy to examine its effect on curbing executive compensation and its unintended impact on firms' M&A decisions. Our results show that after the implementation of the policy: (1) both executive pay and perk expenses of SOEs significantly decreased, and the pay-size and perk-size relations were dramatically weakened, and (2) consequently, SOEs conducted fewer M&As. These results are consistent with the notion that pay-restriction policy had an unintended impact on firm decisions by weakening top managers' pecuniary incentives for growth.

Suggested Citation

  • Lan, Tian & Pan, Luyao, 2026. "Restricting executive pay, growth incentives, and corporate M&As," Journal of Corporate Finance, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:corfin:v:99:y:2026:i:c:s0929119926000350
    DOI: 10.1016/j.jcorpfin.2026.102977
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