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Article
Controlling Shareholders’ Incentives and Executive Pay-for-performance Sensitivity: Evidence from the Split Share Structure Reform in China
Journal of International Financial Markets, Institutions and Money
  • Shenglan Chen, Inner Mongolia University
  • Bingxuan Lin, University of Rhode Island
  • Rui Lu, Sun Yat-sen University
  • Ting Zhang, University of Dayton
Document Type
Article
Publication Date
1-1-2015
Abstract
Using the split share structure reform in China as a natural experiment, we study how changes in controlling shareholder incentive affect the pay-for-performance sensitivity. The reform converts the shares owned by controlling shareholders from non-tradable to tradable shares. The removal of such market friction allows for a better alignment of interests between controlling and minority shareholders, which gives managers more incentives to improve corporate performance. We find that the pay-for-performance sensitivity improves greatly after the reform. Changes in the pay-for-performance sensitivity are also associated with firm ownership structure, the level of agency conflicts and governance quality. Given that firms with controlling shareholders are the dominant form of business organization in many countries around the world, our results have important implications in that they show that a better alignment between controlling and minority shareholders’ incentives has a significant effect on executive compensation.
Inclusive pages
147–160
ISBN/ISSN
1042-4431
Comments

Permission documentation is on file.

Publisher
Elsevier
Peer Reviewed
Yes
Citation Information
Shenglan Chen, Bingxuan Lin, Rui Lu and Ting Zhang. "Controlling Shareholders’ Incentives and Executive Pay-for-performance Sensitivity: Evidence from the Split Share Structure Reform in China" Journal of International Financial Markets, Institutions and Money Vol. 34 (2015)
Available at: http://works.bepress.com/ting-zhang/3/