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Political connections and agency conflicts: the roles of owner and manager political influence on executive compensation

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  • Shujun Ding
  • Chunxin Jia
  • Craig Wilson
  • Zhenyu Wu

Abstract

We investigate how political influence affects executive compensation using a sample of publically listed Chinese firms. Our dataset allows us to examine the interplay between manager political influence that arises through government service and owner political influence that arises through state ownership, as they affect executive compensation. We find that politically connected executives receive greater excess compensation from non-state owned firms, but not from state owned firms. Furthermore, our findings indicate that politically connected managers are rewarded for improved performance only when owners do not have substantial political influence, which is consistent with manager political influence being related to a form of managerial entrenchment that can be mitigated by owner political influence. Conceptually, this study adds to the agency theory literature in the field of corporate governance, as it highlights the owner–manager conflict of interest using political influence as a balance of power. Copyright Springer Science+Business Media New York 2015

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  • Shujun Ding & Chunxin Jia & Craig Wilson & Zhenyu Wu, 2015. "Political connections and agency conflicts: the roles of owner and manager political influence on executive compensation," Review of Quantitative Finance and Accounting, Springer, vol. 45(2), pages 407-434, August.
    • Handle: RePEc:kap:rqfnac:v:45:y:2015:i:2:p:407-434
    DOI: 10.1007/s11156-014-0441-9
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    More about this item

    Keywords

    Political influence; Political connections; Executive compensation; Agency theory; State ownership; G30; G34; G38; J30; J33;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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