Regulatory restriction on executive compensation, corporate governance and firm performance: evidence from China

Haiyan Jiang*, Honghui Zhang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

Purpose - The purpose of this paper is to investigate whether regulatory restriction on executive compensation in Chinese state-owned enterprises is beneficial to firm performance. The authors also examine the role of monitoring mechanisms in offsetting the effect of compensation restriction.

Design/methodology/approach - Multivariate analysis is conducted using archival data from Chinese listed companies over the period of 2007-2014.

Findings - The findings show that the restriction on executive compensation is negatively associated with a firm's accounting performance, and this negative effect is ameliorated in firms with good internal control and a high level of institutional shareholding. Additional analysis reveals that the negative effect of pay restriction on firm performance is more pronounced in central government-controlled listed SOEs than in those controlled by local government.

Originality/value - This study is the first to investigate a government's say-on-pay policy. Specifically, the findings pinpoint the inefficacy of regulatory intervention in corporate executive compensation. The findings add to compensation literature using China's unique institutional setting.

Original languageEnglish
Pages (from-to)131-152
Number of pages22
JournalAsian Review of Accounting
Volume26
Issue number1
DOIs
Publication statusPublished - 5 Feb 2018
Externally publishedYes

Keywords

  • China
  • Executive cash compensation
  • Firm performance
  • Institutional shareholding
  • Internal control

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