A State-Stewardship View on Executive Compensation

55 Pages Posted: 1 Aug 2013

See all articles by Hao Liang

Hao Liang

Singapore Management University - Lee Kong Chian School of Business; European Corporate Governance Institute (ECGI)

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Sunny Li Sun

Date Written: July 24, 2013

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.

Keywords: state-stewardship view, agency theory, executive compensation, political connections

JEL Classification: G34, H70, M12, P26, P31

Suggested Citation

Liang, Hao and Renneboog, Luc and Sun, Sunny Li, A State-Stewardship View on Executive Compensation (July 24, 2013). ECGI - Finance Working Paper No. #374, Available at SSRN: https://ssrn.com/abstract=2297859 or http://dx.doi.org/10.2139/ssrn.2297859

Hao Liang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

HOME PAGE: http://business.smu.edu.sg/faculty/profile/130396/LIANG-Hao

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Luc Renneboog

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

No contact information is available for Sunny Li Sun

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
231
Abstract Views
1,862
rank
166,805
PlumX Metrics