State owned vs. privately owned firms: Whose CEOs are better compensated?
This paper investigates CEO pay and pay-performance relationship in China’s listed firms. We distinguish four types of firms according to their actual controlling owners: State-Owned Enterprises affiliated to State Asset Management Bureaus (SAMBs), State-Owned Enterprises affiliated to the Central Government (SOECGs), State-Owned Enterprises affiliated to the Local Government (SOELGs) and private firms controlled by private investors. We also distinguish between firms with foreign investors and those without. Different objectives, motivations and political interests of controlling owners affect compensation of managers in the firms in which they invest. Our results indicate that SAMB controlled firms have the lowest CEO pay whilst SOECG controlled firms have the highest CEO pay. CEO pay is positively significant associated with frim performance. The positive pay-performance relationship is stronger in SOE controlled firms while weaker in privately controlled firms. Moreover, firms with foreign investors compensate their CEOs more highly than those without foreign investors. This effect is significant in both SOEs and privately controlled firms. Overall, the evidence suggests CEO compensation is jointly determined by firm performance and unique ownership structure in China. Standard theories of efficient compensation contracts may not apply in emerging market like China.
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