The political determinants of executive compensation

Evidence from an emerging economy

Hao Liang, Luc Renneboog, Sunny Li Sun

Research output: Contribution to journalArticleScientificpeer-review

Abstract

In regulated economies, corporate governance mechanisms such as executive compensation are less driven by market-based forces but more subject to political influence. We study the political determinants of executive compensation for all listed Chinese firms in the context of an exogenous shock that removed market frictions in share-tradability. Under strong political constraints, state ownership reduced the managerial pay levels and increased pay-for-performance sensitivity (to asset-based benchmarks). Board independence and compensation committees do not curb managerial pay, and market-based factors do not have a significant influence. However, these effects reversed following the governance shock (removal of market frictions in share tradability).
Original languageEnglish
Pages (from-to)69-91
JournalEmerging Market Review
Volume25
DOIs
Publication statusPublished - Dec 2015

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Market frictions
Executive compensation
Emerging economies
Compensation committees
Corporate governance mechanisms
Benchmark
Board independence
State ownership
Governance
Exogenous shocks
Chinese firms
Pay-for-performance
Assets
Factors
Political constraints
Political influence

Keywords

  • executive compensation
  • political economy
  • state ownership
  • market friction

Cite this

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The political determinants of executive compensation : Evidence from an emerging economy. / Liang, Hao; Renneboog, Luc; Li Sun, Sunny.

In: Emerging Market Review, Vol. 25, 12.2015, p. 69-91.

Research output: Contribution to journalArticleScientificpeer-review

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