Stock market liberalization and pay for market-based performance: Evidence from a quasi-natural experiment in China

Yuyang Chen, Xinlu Wang and Kun Chen

Pacific-Basin Finance Journal, 2023, vol. 79, issue C

Abstract: Our study examines how the liberalization of stock markets affects the contractual usefulness of market information in executive compensation, as reflected in the pay-performance sensitivity. Using a quasi-natural experiment in China, we find that stock market liberalization policy increases the pay-for-market-performance relationship but has no significant impact on pay-for-accounting-performance relationship. Further analyses indicate that the influence of market liberalization on the CEO pay-for-market-performance relationship is restricted to firms with effective governance, a strong legal enforcement environment, operating in unregulated industries, and firms without major shareholders from state agencies. Finally, we find that such effects may be a result of higher price informativeness, shorter price delays and lower price mispricing following stock market liberalization.

Keywords: Stock market liberalization; Stock price informativeness; CEO compensation; Pay-performance relationship (search for similar items in EconPapers)
JEL-codes: G14 G18 M52 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x23000963

DOI: 10.1016/j.pacfin.2023.102030

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