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Executive Compensation and Corporate Governance in China

Research output: Contribution to journalJournal article

Published

Journal publication date2011
JournalJournal of Corporate Finance
Journal number4
Volume17
Number of pages18
Pages1158-1175
Original languageEnglish

Abstract

We investigate executivecompensation and corporategovernance in China's publicly traded firms. We also compare executive pay in China to the USA. Consistent with agency theory, we find that executivecompensation is positively correlated to firm performance. The study shows that executive pay and CEO incentives are lower in State controlled firms and firms with concentrated ownership structures. Boardroom governance is important. We find that firms with more independent directors on the board have a higher pay-for-performance link. Non-State (private) controlled firms and firms with more independent directors on the board are more likely to replace the CEO for poor performance. Finally, we document that US executive pay (salary and bonus) is about seventeen times higher than in China. Significant differences in US–China pay persist even after controlling for economic and governance factors.