Regulatory restriction on executive compensation, corporate governance and firm performance: Evidence from China
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.
Keywords
Citation
Jiang, H. and Zhang, H. (2018), "Regulatory restriction on executive compensation, corporate governance and firm performance: Evidence from China", Asian Review of Accounting, Vol. 26 No. 1, pp. 131-152. https://doi.org/10.1108/ARA-07-2016-0080
Publisher
:Emerald Publishing Limited
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