Restricting CEO Pay Backfires : Evidence from China

다국어 초록 (Multilingual Abstract)

Using the pay restriction imposed on CEOs of centrally administered state-owned enterprises (CSOEs) in China in 2009, we study the effects of limiting CEO pay. Compared with firms not subject to the restriction, the CEOs of CSOEs experience a significant pay cut. Pay-performance sensitivity for these firms also significantly decreases. In response to the pay cut, CEOs increase their consumption of perks and siphon off firm resources for their own benefit. Ultimately, the performance of these firms drops significantly following the pay restriction. Our findings suggest that restricting CEO pay distorts CEO incentives and brings unintended consequences. Our findings caution against limiting the pay of CEOs.

목차 (Table of Contents)

• Abstract
• 1. Introduction
• 2. The pay regulation policy of 2009
• 3. Data and summary statistics
• 3.1. Data construction
• 3.2. Summary statistics
• 4. Empirical results
• 4.1. Univariate difference-in-difference tests
• 4.2. Policy effect on CEO compensation, perk consumption, tunneling, and firm performance
• 5. Robustness tests
• 5.1. Crisis effect on compensation, perks, and tunneling
• 5.2. Top three executive compensation as a measure of compensation
• 5.3. Entertainment and travel costs as a proxy for perks
• 5.4. Related-party transactions as a measure of tunneling
• 5.5 Exclusion of financial firms from the sample
• 6. Conclusion
• References