Political connections and agency conflicts: the roles of owner and manager political influence on executive compensation

Shujun Ding (), Chunxin Jia (), Craig Wilson () and Zhenyu Wu ()

Review of Quantitative Finance and Accounting, 2015, vol. 45, issue 2, 407-434

Abstract: We investigate how political influence affects executive compensation using a sample of publically listed Chinese firms. Our dataset allows us to examine the interplay between manager political influence that arises through government service and owner political influence that arises through state ownership, as they affect executive compensation. We find that politically connected executives receive greater excess compensation from non-state owned firms, but not from state owned firms. Furthermore, our findings indicate that politically connected managers are rewarded for improved performance only when owners do not have substantial political influence, which is consistent with manager political influence being related to a form of managerial entrenchment that can be mitigated by owner political influence. Conceptually, this study adds to the agency theory literature in the field of corporate governance, as it highlights the owner–manager conflict of interest using political influence as a balance of power. Copyright Springer Science+Business Media New York 2015

Keywords: Political influence; Political connections; Executive compensation; Agency theory; State ownership; G30; G34; G38; J30; J33 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (15)

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DOI: 10.1007/s11156-014-0441-9

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