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Coaches or Speculators? The Role and Impact of Venture Capital on Executive Compensation in Chinese Listed Companies

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  • Yangbin Sun
  • Cheng Cheng
  • Shenggang Yang

Abstract

In this paper, we utilize a panel dataset that covers 1245 listed companies which accomplished their IPO during 2006 to 2014 in China to investigate the impact of venture capital (VC) firms on executive compensation, equity incentive and pay-performance-sensitivity. We make several key findings: First, we find the presence of VCs can significantly raise the executive compensation. Second, high reputation VCs and private VCs increases the likelihood of granting executive equity incentives, whereas foreign VCs are significantly negatively related with executive equity incentive. Third, the pay-performance sensitivity of government VCs and foreign VCs is significant on stock return (RET) whereas insignificant on accounting performance (ROA). Moreover, the increasing VCs share in portfolio companies enhance the pay performance sensitivity on RET. Our results show that before VCs final exiting their post-IPO portfolio companies in China, VCs’ impact on executive compensation are more consistent with grandstanding theories and intending to provide higher cash compensation to encourage executives to raise the companies’ stock price, which is indicating VCs’ changing role from a coach into a speculator after the portfolio companies’ IPO.

Suggested Citation

  • Yangbin Sun & Cheng Cheng & Shenggang Yang, 2018. "Coaches or Speculators? The Role and Impact of Venture Capital on Executive Compensation in Chinese Listed Companies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(10), pages 2225-2244, August.
    • Handle: RePEc:mes:emfitr:v:54:y:2018:i:10:p:2225-2244
    DOI: 10.1080/1540496X.2018.1460270
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    Cited by:

    1. Li Jing & Huying Zhang, 2023. "Venture Capital, Compensation Incentive, and Corporate Sustainable Development," Sustainability, MDPI, vol. 15(7), pages 1-19, March.
    2. Li Jing & Huiying Zhang, 2023. "Venture Capitalists on Boards and Corporate Innovation," JRFM, MDPI, vol. 16(3), pages 1-15, February.
    3. Yao, Wenyun & Wei, Jiahui & Shen, Yongjian & Deng, Yan & Kutan, Ali M., 2020. "Does celebrity spokesperson signal firm performance? Evidence from a drug scandal in China," Finance Research Letters, Elsevier, vol. 34(C).

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