A State-Stewardship View on Executive Compensation
The Political Economy of Chinese Finance
ISBN: 978-1-78560-958-9, eISBN: 978-1-78560-957-2
Publication date: 12 November 2016
Abstract
Purpose
We take a state-stewardship view on corporate governance and executive compensation in economies with strong political involvement, where state-appointed managers act as responsible “stewards” rather than “agents” of the state.
Methodology/approach
We test this view on China and find that Chinese managers are remunerated not for maximizing equity value but for increasing the value of state-owned assets.
Findings
Managerial compensation depends on political connections and prestige, and on the firms’ contribution to political goals. These effects were attenuated since the market-oriented governance reform.
Research limitations/implications
Economic reform without reforming the human resources policies at the executive level enables the autocratic state to exert political power on corporate decision making, so as to ensure that firms’ business activities fulfill the state’s political objectives.
Practical implications
As a powerful social elite, the state-steward managers in China have the same interests as the state (the government), namely extracting rents that should adhere to the nation (which stands for the society at large or the collective private citizens).
Social implications
As China has been a communist country with a single ruling party for decades, the ideas of socialism still have a strong impact on how companies are run. The legitimacy of the elite’s privileged rights over private sectors is central to our question.
Originality/value
Chinese executive compensation stimulates not only the maximization of shareholder value but also the preservation of the state’s interests.
Keywords
Acknowledgements
Acknowledgments
We thank Lucian Bebchuk, Fabio Braggion, Jerry Cao, Joost Driessen, Olivier de Jonghe, Michael Firth, Wayne Guay, Xu Lang, Chris Marquis, Dwight Perkins, Bing Ren, Oliver Spalt, Dylan Sutherland, Yuhai Xuan, and the seminar and conference participants at Harvard Kennedy School, Harvard Law School, London School of Economics, Copenhagen Business School, CESifo Venice Summer Institute, Asian Finance Association conference, Peking University, Tsinghua University, Nankai University, and Tilburg University for their valuable comments. Special thanks to Bing Ren at Nankai University for providing data on Chinese directors’ interlocking network to us. We are also grateful to Yan Wang, Ying Zheng, Haoyu Wu, and Haikun Zhu for the excellent research assistant work.
Citation
Liang, H., Renneboog, L. and Sun, S.L. (2016), "A State-Stewardship View on Executive Compensation", The Political Economy of Chinese Finance (International Finance Review, Vol. 17), Emerald Group Publishing Limited, Leeds, pp. 39-91. https://doi.org/10.1108/S1569-376720160000017009
Publisher
:Emerald Group Publishing Limited
Copyright © 2016 Emerald Group Publishing Limited