Disproportional ownership structure and pay-performance relationship: Evidence from China's listed firms

Jerry Cao, Xiaofei Pan, Gary Tian*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

82 Citations (Scopus)


This paper examines the impact of ownership structure on executive compensation in China's listed firms. We find that the cash flow rights of ultimate controlling shareholders have a positive effect on the pay-performance relationship, while a divergence between control rights and cash flow rights has a significantly negative effect on the pay-performance relationship. We divide our sample based on ultimate controlling shareholders' type into state owned enterprises (SOE), state assets management bureaus (SAMB), and privately controlled firms. We find that in SOE controlled firms cash flow rights have a significant impact on accounting based pay-performance relationship. In privately controlled firms, cash flow rights affect the market based pay-performance relationship. In SAMB controlled firms, CEO pay bears no relationship with either accounting or market based performance. The evidence suggests that CEO pay is inefficient in firms where the state is the controlling shareholder because it is insensitive to market based performance but consistent with the efforts of controlling shareholders to maximize their private benefit.

Original languageEnglish
Pages (from-to)541-554
Number of pages14
JournalJournal of Corporate Finance
Issue number3
Publication statusPublished - Jun 2011
Externally publishedYes


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