The Political Determinants of Executive Compensation: Evidence from an Emerging Economy

Publication Type

Journal Article

Publication Date

12-2015

Abstract

In regulated economies, corporate governance mechanisms such as executive compensation are less driven by market-based forces but more subject to political influence. We study the political determinants of executive compensation for all listed Chinese firms in the context of an exogenous shock that removed market frictions in share-tradability. Under strong political constraints, state ownership reduced the managerial pay levels and increased pay-for-performance sensitivity (to asset-based benchmarks). Board independence and compensation committees do not curb managerial pay, and market-based factors do not have a significant influence. However, these effects reversed following the governance shock (removal of market frictions in share tradability).

Keywords

Executive compensation, Political economy, State ownership, Market friction

Discipline

Asian Studies | Corporate Finance | Human Resources Management

Research Areas

Finance

Publication

Emerging Markets Review

Volume

25

First Page

69

Last Page

91

ISSN

1566-0141

Identifier

10.1016/j.ememar.2015.04.008

Publisher

Elsevier

Additional URL

https://doi.org/10.1016/j.ememar.2015.04.008

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