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Executive compensation and the split share structure reform in China

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  • Wenxuan Hou
  • Edward Lee
  • Konstantinos Stathopoulos
  • Zhenxu Tong

Abstract

The split share structure reform in China enables state shareholders of listed firms to trade their restricted shares. This renders the wealth of state shareholders more strongly related to share price movements. We predict that this reform will create remuneration arrangements that strengthen the relationship between Chinese firms’ executive pay and stock market performance. We confirm this prediction by showing that there is such an effect among state-controlled firms, and especially those where the dominant shareholders have a greater incentive to improve share return performance. Our results indicate that this reform strengthens the accountability of executives to external monitoring by the stock market, and therefore benefits minority shareholders in China.

Suggested Citation

  • Wenxuan Hou & Edward Lee & Konstantinos Stathopoulos & Zhenxu Tong, 2016. "Executive compensation and the split share structure reform in China," The European Journal of Finance, Taylor & Francis Journals, vol. 22(4-6), pages 506-528, April.
    • Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:506-528
    DOI: 10.1080/1351847X.2013.802250
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    Cited by:

    1. He, Wei & Mukherjee, Tarun K. & Kent Baker, H., 2017. "The effect of the split share structure reform on working capital management of Chinese companies," Global Finance Journal, Elsevier, vol. 33(C), pages 27-37.
    2. Li, Zhenghui & Chen, Bin & Lu, Siting & Liao, Gaoke, 2024. "The impact of financial institutions' cross-shareholdings on risk-taking," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 1526-1544.
    3. Liu Ping & Hosain Md Sajjad & Li Liyan, 2019. "Does the compensation gap between executives and staffs influence future firm performance? The moderating roles of managerial power and overconfidence," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 55(4), pages 287-318, December.
    4. Chen, Yuyang & Wang, Xinlu & Chen, Kun, 2023. "Stock market liberalization and pay for market-based performance: Evidence from a quasi-natural experiment in China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    5. Cai, Weixing & Lee, Edward & Wu, Zhenyu & Xu, Alice Liang & Zeng, Cheng (Colin), 2017. "Do Economic Incentives of Controlling Shareholders Influence Corporate Social Responsibility Disclosure? A Natural Experiment," The International Journal of Accounting, Elsevier, vol. 52(3), pages 238-250.
    6. Liu, Baohua & Zhang, Nihui & Chan, Kam C. & Chen, Yining & Qiu, Xuemei, 2024. "Executive equity incentive plans: Effective golden handcuffs?," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 83-97.

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