Revisiting Executive Pay, Firm Performance, and Corporate Governance in China

This empirical research reexamines a variety of key determinants of Chief Executive Officer (CEO) compensation level in Chinese corporations listed in Shanghai and Shenzhen Stocks Exchanges during the years 2009–2015, which covers between the two major Chinese stock market corrections breaking out in the most recent time. Both pooled ordinary least squares and fixed effects regression models are employed. Our findings indicate that a) The level of Chinese CEO pay is positively associated with firm performance such as returns on assets (ROA) and stock price returns; b) The level of Chinese CEO pay is negatively affected by the corporate governance variables of outside investor ownership and CEO–Chairperson duality, positively affected by the proportions of independent directors in board, and unaffected by the state ownership; c) The influence of ownership and board structures on the level of Chinese CEO pay varies across firm characteristics such as size, financial leverage, stock return volatility and Tobin’s q; d) The link between Chinese CEO pay and ROA performance is considerably stronger in those firms with greater outsider ownership, greater board independence and less duality; and e) The link between Chinese CEO pay and stock return performance is unaffected by corporate governance factors.