Executive compensation and the split share structure reform in China

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 related to share price movements.We predict this reform will create remuneration arrangements that increase the relationship between Chinese firms' executive pay and stock market performance. We confirm this prediction by showing such effect among state-controlled firms and especially those where dominant shareholders have greater incentives to improve share return performance. Our results indicate this reform strengthens the accountability of executives to external monitoring by stock market and therefore benefit minority shareholders in China.

Executive Compensation and Corporate Fraud in China

“…Firth et al (2007) and Conyon and He (2011) both document that the sensitivity of executive pay to firm performance is significantly lower in SOEs than in privately controlled public firms. Hou et al (2014) find that the split-share structure reform that privatizes SOEs leads to a stronger relationship between executive compensation and stock market performance. SOEs are also found to be inferior in disciplining CEOs for poor performance.…”

Managerial ownership, corporate governance and firms' exporting decisions: evidence from Chinese listed companies

“…First, agency costs were significantly reduced following the reform (Li et al, 2011;Hou et al, 2013;Hou and Lee, 2014). To take this into account, in columns 6/7 and 13/14 of Table 7, we provide separate estimates of Equation (1) …”

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“…CONC denotes one of the two measures of ownership concentration, namely the ownership Herfindahl-Hirschman index (HHI) or the top three shareholders' concentration ratio (CR3). The HHI equals the sum of the squared ownership shares of the ten largest shareholders of the bank (Demsetz and Lehn, 1985;Hou et al, 2013). The higher is the value of the HHI, the more concentrated is the ownership of the bank.…”