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Does hometown connection between chairmen and CEOs improve compensation–performance sensitivity in China?

Author

Listed:
  • Di Wang

    (Jinan University)

  • Zhanchi Wu

    (Jinan University)

  • Junjie You

    (Jinan University)

  • Bangzhu Zhu

    (Guangxi University)

  • Rongwu Zhang

    (Guangzhou University)

Abstract

Based on a the micro dataset set of private Chinese-listed companies, this study examines the in detail the impact of hometown connections between chief executive officers (CEOs) and chairmen on CEO compensation–performance sensitivity. The empirical results suggest that a hometown connection prompts both the chairman and the CEO to pay more attention to their reputations, which improves CEO compensation–performance sensitivity. This hometown effect is more pronounced when the hometown culture is strong and the degree of marketization is high. The mechanism test reveals that an externally hierd CEO strengthens the influence of a hometown connection on CEO compensation–performance sensitivity, however, this influence weakens with increasing CEO tenure. Overall, this study enriches the literature on informal institutions and compensation contracts and provides valuable insights for company managers and policymakers in emerging markets.

Suggested Citation

  • Di Wang & Zhanchi Wu & Junjie You & Bangzhu Zhu & Rongwu Zhang, 2023. "Does hometown connection between chairmen and CEOs improve compensation–performance sensitivity in China?," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-12, December.
    • Handle: RePEc:pal:palcom:v:10:y:2023:i:1:d:10.1057_s41599-023-01549-6
    DOI: 10.1057/s41599-023-01549-6
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    1. Huixiang Zeng & Limin Zheng & Xiaoyu Li & Yutong Zhang & Linrong Chen, 2023. "Are optimistic CEOs and pessimistic CFOs the best partners? Evidence from corporate cash holdings," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-19, December.
    2. Sadeen Ghafoor & Weidong Huo & Man Wang & Yunjiang Geng & Muhammad Zulfiqar & Muhammad Usman Yousaf, 2024. "Unique types and innovation input of family firm CEOs: moderating role of managerial ability in Chinese listed firms," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-14, December.

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