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CEO Incentives in Chinese State-Controlled Firms

Xunan Feng and Anders Johansson ()

Economic Development and Cultural Change, 2017, vol. 65, issue 2, 223 - 264

Abstract: This article investigates CEO incentives in Chinese state-controlled firms. We find that firm performance is positively related to CEO compensation. We also find that firm performance is positively associated with CEO promotion and negatively associated with CEO turnover. CEOs for state-controlled firms thus face significant incentives, not only in monetary form but also in terms of career prospects. These results suggest that the CEO labor market in China’s state sector exhibits characteristics like those found in managerial labor markets in developed countries. Moreover, we show that local institutions are associated with the relationship between CEO incentives and firm performance, with the relationship being stronger in regions characterized by stronger institutions. Overall, our results demonstrate that firm performance is associated with CEO incentives for state-controlled firms in China, suggesting that there is a functioning labor market for top managers in China’s state sector.

Date: 2017
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