Non‐controlling shareholder activism and executive pay‐for‐performance sensitivity: Evidence from the over‐appointment of directors in the Chinese market

Author:

Li Shengnan1ORCID,Wang Jiaqi1,Zheng Xinya1,Zhu Chiyun1

Affiliation:

1. College of Management and Economics Tianjin University Tianjin China

Abstract

AbstractWe examine the impact of non‐controlling shareholder activism on the effectiveness of executive compensation contract, particularly focusing on the over‐appointment of directors in A‐share firms listed on the Shanghai and Shenzhen Stock Exchanges from 2008 to 2021. We discover that such over‐appointments by non‐controlling shareholders significantly promote executive pay‐for‐performance sensitivity of these enterprises. This effect becomes even more pronounced in enterprises that display a weaker government intervention and media attention. Further mechanism analysis indicates that over‐appointments improve the effectiveness of compensation contract by improving the quality of accounting information and restraining executives' opportunistic behaviour. Our further research finds that over‐appointments by non‐controlling shareholders can effectively reduce executive compensation stickiness, while significantly increasing the absolute salary level of executives. There is no evidence to suggest that independent directors increase executive pay‐for‐performance sensitivity.

Funder

National Social Science Fund of China

Publisher

Wiley

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