Restricting CEO pay backfires: Evidence from China-Reference-Cited by-同舟云学术

Restricting CEO pay backfires: Evidence from China

Published:2023-07-13 Issue: Volume: Page:
ISSN:0306-686X
Container-title:Journal of Business Finance & Accounting
language:en
Short-container-title:Business Fin & Account

Author:

Bae Kee‐Hong¹^ORCID,Gong Zhaoran (Jason)²^ORCID,Tong Wilson H. S.³⁴

Affiliation:

1. Schulich School of Business York University Toronto Canada

2. Department of Finance, International Business School Suzhou Xi'an Jiaotong‐Liverpool University Suzhou China

3. Faculty of Business Hong Kong Polytechnic University Hong Kong Hong Kong

4. Shenzhen Audencia Business School Shenzhen University Shenzhen China

Abstract

AbstractUsing the pay restriction imposed on CEOs of centrally administered state‐owned enterprises (CSOEs) in China in 2009, we study the effects of limiting CEO pay. Compared with CEOs of firms not subject to the restriction, the CEOs of CSOEs experienced a significant pay cut. In response to the pay cut, CEOs increased the consumption of perks and siphoned off firm resources for their own benefit. Pay‐performance sensitivity for these firms also significantly decreases. The performance of these firms dropped following the pay restriction. Our findings suggest that restricting CEO pay distorts CEO incentives and brings unintended consequences. Our findings caution against limiting CEO pay.

Publisher

Wiley

Subject

Finance,Business, Management and Accounting (miscellaneous),Accounting

Link

https://onlinelibrary.wiley.com/doi/pdf/10.1111/jbfa.12741

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