A state-stewardship view on executive compensation
Liang,Hao Renneboog,Luc Li Sun ,Sunny
Liang,Hao
Renneboog,Luc
Li Sun ,Sunny
Abstract
We take a state-stewardship view on the corporate governance model and executive compensation policies in economies with strong political involvement. In such a highly politically-oriented institutional environment, the business elites are not just professional managers but are also de facto government officials who are directly state-appointed – even in ‘private’ firms. They are expected to act as responsible ‘stewards’ of the state. Consequently, their compensation may differ from what agency theory predicts. We test this state-stewardship view on China and find that Chinese managers are remunerated not for maximizing equity value but for increasing the value of the state-owned assets. Managerial compensation depends on political connections and prestige, and on the firms’ contribution to political and macroeconomic goals and the officials’ political achievements. These effects were somewhat weakened since the governance reform of 2006, when companies became more market-oriented though state influence still prevails. In a social welfare perspective, the compensation of state-steward managers stimulates not the maximization of shareholder value but the preservation of the state’s interests.
Description
Date
2016
Journal Title
Journal ISSN
Volume Title
Publisher
Emerald group publishing limited
Research Projects
Organizational Units
Journal Issue
Keywords
state-stewardship view, agency theory, executive compensation, political connections, G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance, H70 - General, M12 - Personnel Management ; Executives; Executive Compensation, P26 - Property Rights, P31 - Socialist Enterprises and Their Transitions, SDG 16 - Peace, Justice and Strong Institutions
Citation
Liang, H, Renneboog, L & Li Sun , S 2016, A state-stewardship view on executive compensation. in J Choi, M Powers & X Zhang (eds), The Political Economy of Chinese Finance. vol. 17, International Finance Review, vol. 17, Emerald group publishing limited, pp. 39-91. https://doi.org/10.1108/S1569-376720160000017009