Effects of minimum wage policies on executive compensation contracts: An empirical analysis in China

Lei Jian, Meng Wang, Xiaojia Wang and Yan Zhang

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: This paper investigates the impact of minimum wage policies on executive pay-for-performance sensitivity (PPS) in the compensation packages of A-share listed firms in China. Using data from 745 counties between 2007 and 2020, we find that minimum wage policies lead to a decrease in PPS. This finding remains robust through instrumental variable approaches, cross-border matching tests, alternative measurements, and other rigorous tests. Moreover, the negative impact of minimum wage on PPS is more pronounced in companies with higher labor dependency, limited ability to pass on labor costs to customers, and lower risk resilience. These results support the hypothesis that rising labor costs due to increased minimum wage, which lead to performance distortion and heightened risk, promote shareholders to reduce PPS to optimize compensation contracts for value maximization.

Keywords: Minimum wage policies; Executive compensation; Pay-for-performance sensitivity (search for similar items in EconPapers)
JEL-codes: D21 G34 G38 J31 J38 M52 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521924006148
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:finana:v:96:y:2024:i:pb:s1057521924006148

DOI: 10.1016/j.irfa.2024.103682

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().