Pay Dispersion Ownership Structure and Firm Performance in China's Listed Firms
30 Pages Posted: 12 Jan 2010 Last revised: 19 Apr 2016
Date Written: January 10, 2010
This paper investigates pay dispersion and its effects on firm performance in China’s listed firms. Due to weak investor protection and an inefficient legal system, China is expected to have a lower level of corporate governance. In this weak institutional environment, we argue that awarding sufficient power and high pay to CEOs is helpful to increase firm performance. Using data from 2002 to 2007, we find that pay dispersion is related to tournament incentives and agency factors. Importantly, we find evidence that pay dispersion is positively related to firm performance which is consistent with our primary hypothesis. In addition, the relation is more positive when the firm is controlled by the state. Our results are robust to corrections for endogeneity between pay dispersion and firm performance and to several alternative measures of pay dispersion and firm performance.
Keywords: pay dispersion, firm performance, corporate governance
JEL Classification: G32, G34
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