An Investigation of the Transmission Mechanism of Executive Compensation Control to the Operating Performance of State-Owned Listed Companies

Ling Bo, Decai Tang, Jingyi Zhang and Brandon J. Bethel
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Ling Bo: School of Business, Nanjing University, Nanjing 210093, China
Decai Tang: School of Law and Business, Sanjiang University, Nanjing 210012, China
Jingyi Zhang: School of Business, Nanjing Normal University, Nanjing 210023, China
Brandon J. Bethel: School of Marine Sciences, Nanjing University of Information Science & Technology, Nanjing 210044, China

Sustainability, 2022, vol. 14, issue 10, 1-14

Abstract: Salary control is an effective mechanism used to modulate executive incentives and behaviors in many state-owned listed companies (SOLCs). This is especially true in China considering the vast number and scale of SOLCs. To gain a deeper understanding of the effect of salary control on operating performance of SOLCS, this study investigated salary control policy introduced by the Chinese government in 2015 using data acquired from Shanghai-Shenzhen A-share listed companies from 2010–2017. It was identified that primarily, executive compensation regulation leads to the decline of the operating performance of state-owned listed companies, and the impact of salary control is mainly transmitted through executive behavior. Second, there has been no significant change in the level of OJC of executives before and after pay control and thirdly, salary control reduces the actual effort of state-owned listed company executives, which is reflected in the high level of investment behavior such as the reduction of investment level and the reduction of the frequency of mergers and acquisitions. The above conclusions show that salary control is more likely to lead to a decline in business performance through the “lazy politics” of executives.

Keywords: Chinese state-owned listed companies; salary control; executive behavior; business performance; operating performance; return on assets (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
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