Institutional change of compensation policy and its impact on CEO turnover and firm performance

Chenli Yin (), Dan Li and Maria Paz Salmador
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Chenli Yin: Universidad Autónoma de Madrid
Dan Li: Kelley School of Business, Indiana University
Maria Paz Salmador: Universidad Autónoma de Madrid

Review of Managerial Science, 2022, vol. 16, issue 8, No 8, 2527-2552

Abstract: Abstract The existing corporate governance literature has mostly focused on micro-level studies of executive compensation, with limited attention paid to influential macro-level factors such as institutions and institutional changes and their impacts on corporate governance and performance. The implementation of the new compensation policy that restricts CEO compensation ceiling in state-owned firms in China offers an ideal context for us to study how institutional changes and firms’ adoption of these changes can influence CEO turnover and firm performance. Our empirical analyses reveal that the positive impact of new compensation policy adoption on CEO turnover is stronger for CEOs with originally higher compensation. The impact of new compensation policy adoption on firm performance, however, is negative, and the negative impact is contingent upon a firm’s market share and tech intensity. Our research contributes to the literature on corporate governance by theorizing and empirically demonstrating the critical role that institutions play in corporate governance.

Keywords: CEO compensation; CEO turnover; Firm performance; Institutions; Policy change; 62J05 (Linear regression); 62J12 (Generalized linear models) (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11846-021-00507-3

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