The political determinants of executive compensation: Evidence from an emerging economy

Hao Liang, Luc Renneboog, Sunny Li Sun

Research output: Contribution to journalArticleScientificpeer-review

10 Citations (Scopus)

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

Keywords

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

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