Executive compensation, managerial ownership and board characteristics in Chinese listed companies

摘要

Empirical research on executive compensation in China is very small compared to western countries, despite the fact that China is already the largest emerging economy. Moreover, most studies on executive compensation in China focus on the agency theory model and have produced mixed results. Little research on executive compensation has been done using alternative perspectives. This thesis explores management incentive issues by examining executive compensation in Chinese listed companies from three under-researched perspectives: the managerial power model, tournament model and simultaneous model. All three models have been adapted to the Chinese context. The managerial power model tests executive compensation from the managerial power perspective. A new power dimension - political power - is added to Grabke-Rundell and Gomez-Mejia's (2002) managerial power model in order to test the political influence on executive compensation in Chinese listed companies. The research findings support the hypothesis that political duality, which refers to Chairman/Party Secretary duality, is positively related to executive compensation in Chinese listed companies. The tournament model examines the organizational incentive structures. It studies the pay differences between organizational levels instead of studying the absolute level of pay, which provides an alternative incentive design other than the pay for performance mechanism. It is found that government ownership can weaken the tournament incentive in Chinese listed companies. Finally, the endogenous nature of executive compensation has been largely neglected by previous studies. This study contributes to the literature by examining executive compensation, managerial ownership, board characteristics and firm value in Chinese listed companies in a simultaneous model. The research findings show that executive compensation, managerial ownership and board characteristics are jointly determined in Chinese listed companies. Specifically, small boards help to control Highest Paid Director (HPD) compensation, to align the interests between HPD and the company and to increase firm value. Independent directors also help to align the interest between the HPD and the company and to increase firm value. Political duality (Chairman/Party Secretary duality) fails to control HPD compensation but it helps to control board size.