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Regulatory restriction on executive compensation, corporate governance and firm performance

Author

Listed:
  • Haiyan Jiang
  • Honghui Zhang

Abstract

Purpose - The purpose of this paper is to investigate whether regulatory restriction on executive compensation in Chinese state-owned enterprises is beneficial to firm performance. The authors also examine the role of monitoring mechanisms in offsetting the effect of compensation restriction. Design/methodology/approach - Multivariate analysis is conducted using archival data from Chinese listed companies over the period of 2007-2014. Findings - The findings show that the restriction on executive compensation is negatively associated with a firm’s accounting performance, and this negative effect is ameliorated in firms with good internal control and a high level of institutional shareholding. Additional analysis reveals that the negative effect of pay restriction on firm performance is more pronounced in central government-controlled listed SOEs than in those controlled by local government. Originality/value - This study is the first to investigate a government’s say-on-pay policy. Specifically, the findings pinpoint the inefficacy of regulatory intervention in corporate executive compensation. The findings add to compensation literature using China’s unique institutional setting.

Suggested Citation

  • Haiyan Jiang & Honghui Zhang, 2018. "Regulatory restriction on executive compensation, corporate governance and firm performance," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 26(1), pages 131-152, February.
    • Handle: RePEc:eme:arapps:ara-07-2016-0080
    DOI: 10.1108/ARA-07-2016-0080
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    Citations

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    Cited by:

    1. Ebrahim Mohammed Al-Matari & Mahfoudh Hussein Mgammal & Mushari Hamdan Alosaimi & Talal Fawzi Alruwaili & Sultan Al-Bogami, 2022. "Fintech, Board of Directors and Corporate Performance in Saudi Arabia Financial Sector: Empirical Study," Sustainability, MDPI, vol. 14(17), pages 1-23, August.
    2. Tong, Tong & Chen, Xiaoyue & Singh, Tarlok & Li, Bin, 2022. "Corporate governance and the outward foreign direct investment: Firm-level evidence from China," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 962-980.
    3. Kun Su & Haiyan Jiang & Gary Tian, 2020. "Government's Say‐on‐pay Policy and Corporate Risk‐taking: Evidence from China," Abacus, Accounting Foundation, University of Sydney, vol. 56(4), pages 561-601, December.
    4. Ling Bo & Decai Tang & Jingyi Zhang & Brandon J. Bethel, 2022. "An Investigation of the Transmission Mechanism of Executive Compensation Control to the Operating Performance of State-Owned Listed Companies," Sustainability, MDPI, vol. 14(10), pages 1-14, May.
    5. Idris Idris & Khofifatu Rohmah Adi & Budi Eko Soetjipto & Achmad Sani Supriyanto, 2020. "The mediating role of job satisfaction on compensation, work environment, and employee performance: Evidence from Indonesia," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(2), pages 735-750, December.

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