Foreign institutional investors and executive compensation incentives: Evidence from China

Xu Cheng, Dongmin Kong and Gaowen Kong

Journal of Multinational Financial Management, 2022, vol. 66, issue C

Abstract: This study examines the effect of foreign institutional investors (FIIs) on executive compensation incentives. Using the quasi-natural experiment of Shanghai (Shenzhen)–Hong Kong Stock Connect, we show that the presence of FIIs has a positive effect on pay-for-performance sensitivity (PPS) and helps to decrease excessive compensation. We also demonstrate that good corporate governance and high accounting information quality would be two possible underlying channels. Our results are more pronounced for firms with fewer state-owned shareholders and powerful managers. Overall, our results indicate that compared with domestic counterparts, FIIs are more effective at improving firms’ executive compensation incentives.

Keywords: Foreign institutional investors; Executive compensation; Shanghai/Shenzhen-Hong Kong stock connect (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:66:y:2022:i:c:s1042444x22000299

DOI: 10.1016/j.mulfin.2022.100758

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