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Do all CEO pay regulations hurt firm performance? Evidence from China

Author

Listed:
  • Xiaochuan Tong
  • Weijie Wang
  • Yaowu Liu

Abstract

Purpose - The authors study and compare the effects of three CEO compensation restricting policies issued by the Chinese government in 2009, 2012 and 2015. This paper aims to shed light on the conditions under which CEO compenstation can be effectively regulated without negatively affecting firm performance. Design/methodology/approach - These policies targeted state-owned enterprises (SOEs), especially central state-owned enterprises (CSOEs). Using these policies as natural experiments, the authors investigate how their effects differ on CEO compensation, firm performance and two known performance-decreasing mechanisms: perk consumption and tunneling activities. Findings - The authors show that restricting CEO pay does not necessarily backfire in terms of deteriorating firm performance. This non-decreasing firm performance can be achieved by restricting perk consumption and tunneling activities while introducing CEO pay regulations. Originality/value - The authors exploit a powerful experimental setting in the context of China. The evidence contributes to the literature on CEO pay regulations and is relevant to the managerial decisions of policy makers and boards of directors.

Suggested Citation

  • Xiaochuan Tong & Weijie Wang & Yaowu Liu, 2023. "Do all CEO pay regulations hurt firm performance? Evidence from China," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 20(3), pages 794-820, October.
    • Handle: RePEc:eme:ijmfpp:ijmf-09-2021-0458
    DOI: 10.1108/IJMF-09-2021-0458
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