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Cultural proximity and CEO remuneration

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  • Song, Chen
  • Duan, Jiaxin

Abstract

This paper studies the impact of cultural proximity between the CEO and the chairperson on CEO remuneration packages. Using dialect similarity as a proxy for cultural proximity, we find that CEOs receive higher remuneration packages when they share a common dialect with chairpersons. However, this positive effect is less pronounced in state-owned enterprises and when the CEO and the chairperson work in their hometowns. We also explore the underlying mechanisms driving this positive effect. Our results suggest that this effect is more pronounced in firms with weaker monitoring power and those operating in lower social trust environments. These findings highlight two potential channels through which cultural proximity influences CEO remuneration packages: the reduced monitoring vigilance of the chairperson and the enhanced mutual trust between the CEO and the chairperson. This study contributes to the literature by shedding light on the role of informal cultural institutions in shaping CEO remuneration packages.

Suggested Citation

  • Song, Chen & Duan, Jiaxin, 2025. "Cultural proximity and CEO remuneration," Pacific-Basin Finance Journal, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:pacfin:v:94:y:2025:i:c:s0927538x25003117
    DOI: 10.1016/j.pacfin.2025.102974
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • Z1 - Other Special Topics - - Cultural Economics

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