Do Managers Influence their Pay? Evidence from Stock Incentive Plans in an Immature Market Economy

摘要

This study examines the extent of managerial influence over executive stock incentive plans in an immature market economy, namely, China. Using a sample of 53 stock incentive plans in Chinese publicly listed companies during 2006-2007, we find a significant decline in stock prices before the disclosure of stock incentive plans and a significant increase in stock prices shortly after the disclosure, consistent with self-interested managers undertaking self-dealing opportunities to affect the exercise price of incentive plans. We also find that the abnormal stock return reversals are more pronounced for non-State-owned enterprises (non-SOEs) with less independent compensation committees, suggesting that strong corporate governance plays an important role in curbing opportunistic behavior related to stock incentive compensations. Taken together, our findings suggest that managers in Chinese publicly listed companies engage in opportunistic behavior that maximizes their incentive compensation.