Executive compensation limits and corporate M&As: Evidence from a Quasi-natural experiment

Yuqiang Cao, Yongfeng Yang, Qijian Wang and Huitao Luo

Economic Analysis and Policy, 2025, vol. 87, issue C, 2059-2082

Abstract: Based on the exogenous shock of the executive compensation limit applied to state-owned enterprises (SOEs), this study examines the impact of executive compensation restrictions on corporate merger and acquisition (M&A) activities. We find that the Chinese government policy restricting executive pay decreases corporate M&A activities in SOEs; that is, it reduces both the likelihood and the frequency of M&A transactions. This effect is more pronounced for firms in less competitive markets, firms with better corporate governance, and firms with greater expansion demand. The underlying mechanisms include political promotion incentives, executive perks, and managerial overconfidence. The evidence also shows improvements in the quality of M&As and enhanced efficiency in corporate investments. Our findings demonstrate the consequence of compensation contract design in SOEs compared to non-SOEs, offering valuable insights for regulators, managers, and investors.

Keywords: Executive compensation limits; Corporate M&As; Pay restriction policies (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S031359262500325X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:87:y:2025:i:c:p:2059-2082

DOI: 10.1016/j.eap.2025.08.007

Access Statistics for this article

Economic Analysis and Policy is currently edited by Clevo Wilson

More articles in Economic Analysis and Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().