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Do managerial pay caps intensify agency conflicts? Evidence from corporate cash holdings

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  • Guo, Jia
  • Wang, Kemin
  • Zhang, Guanglong

Abstract

We leverage the 2015 managerial pay reform in Chinese state-owned enterprises (SOEs) as a quasi-natural experiment to examine whether managerial pay caps intensify corporate agency conflicts. Our results show that affected SOEs opportunistically increase cash holdings, as managers seek to self-compensate for the pay reduction. This cash-hoarding effect is stronger for firms facing more severe agency problems and weaker external oversight. Consequently, firms that hoard more cash due to the pay cap suffer a lower marginal value of cash, decreased operational efficiency, and reduced profitability. Our findings suggest that a “one-size-fits-all” mandatory pay cap may unintentionally exacerbate agency conflicts and hinder economic efficiency.

Suggested Citation

  • Guo, Jia & Wang, Kemin & Zhang, Guanglong, 2026. "Do managerial pay caps intensify agency conflicts? Evidence from corporate cash holdings," Pacific-Basin Finance Journal, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:pacfin:v:96:y:2026:i:c:s0927538x2600003x
    DOI: 10.1016/j.pacfin.2026.103057
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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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