Publication Details

Pan, X., Tian, G. & Cao, J. (2009). State owned vs. privately owned firms: whose CEOs are better compensated?. 22nd Australasian Finance and Banking Conference (pp. 1-37). Sydney, Australia: University of New South Wales, Australian School of Business.


This paper investigates CEO pay and pay-performance relationshipin China s listed firms. We distinguish four firm types based on theircontrolling owners: state owned enterprises affiliated with stateasset management bureaus (SAMBs), state owned enterprisesaffiliated with the central government (SOECGs), state ownedenterprises affiliated with a local government (SOELGs), and privatefirms controlled by private investors. We also distinguish betweenfirms with foreign investors and those without. Because thedifferent types of controlling owners have different objectives,motivations, and political interests, they affect managerscompensation in the firms in which they invest. Our results indicatethat CEO pay is lowest in SAMB controlled firms and highest inSOECG controlled firms. Not only is CEO pay positively associatedwith firm performance, the positive pay-performance relationship isstronger in both types of SOE firms but weaker in privatelycontrolled firms. In addition, firms with foreign investorscompensate their CEOs more highly than those without foreigninvestors, an effect that is significant in both SOEs and privatelycontrolled firms. Overall, the evidence suggests that CEOcompensation in China is jointly determined by firm performance,market-oriented reform and the unique ownership structure,meaning that standard theories of efficient compensation contracts may not apply in such emerging markets.

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Australasian Finance and Banking Conference