Regulatory restriction on executive compensation, corporate governance and firm performance

Haiyan Jiang and Honghui Zhang

Asian Review of Accounting, 2018, vol. 26, issue 1, 131-152

Abstract: Purpose - The purpose of this paper is to investigate whether regulatory restriction on executive compensation in Chinese state-owned enterprises is beneficial to firm performance. The authors also examine the role of monitoring mechanisms in offsetting the effect of compensation restriction. Design/methodology/approach - Multivariate analysis is conducted using archival data from Chinese listed companies over the period of 2007-2014. Findings - The findings show that the restriction on executive compensation is negatively associated with a firm’s accounting performance, and this negative effect is ameliorated in firms with good internal control and a high level of institutional shareholding. Additional analysis reveals that the negative effect of pay restriction on firm performance is more pronounced in central government-controlled listed SOEs than in those controlled by local government. Originality/value - This study is the first to investigate a government’s say-on-pay policy. Specifically, the findings pinpoint the inefficacy of regulatory intervention in corporate executive compensation. The findings add to compensation literature using China’s unique institutional setting.

Keywords: China; Firm performance; Internal control; Institutional shareholding; Executive cash compensation (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:arapps:ara-07-2016-0080

DOI: 10.1108/ARA-07-2016-0080

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