Chen, J., Ezzamel, M. and Cai, Z.
Managerial power theory, tournament theory, and executive pay in China.
Journal of Corporate Finance, 17 (4).
Publisher's URL: http://dx.doi.org/10.1016/j.jcorpfin.2011.04.008
In this paper, we test two models of executive pay that have not received much attention in Chinese listed companies: managerial power theory and tournament theory. We find that structural power (executive share ownership) and prestige power (executive education) 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’ organisation levels (as reflected in executive pay levels for the three highest paid executives) are positively related to executive remuneration and the relationship is convex, and negatively related to the interaction between executive directors’ organisation levels 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.
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