Executive remuneration, corporate governance and corporate performance: Evidence from China

This study investigates the impact of corporate performance and corporate governance on executive remuneration in a Chinese market setting. Using Generalized Method of Moments (GMM) estimation approach for a sample of 860 non-financial firms listed on Chinese Stock Exchanges over the 15 years period of 2004-2018, the study found a positive and significant association between corporate profitability and executive pay. The study further reports that ownership concentration is positively related to executive pay revealing an entrenchment effect i.e., collusion between large shareholders and top management. Consistent with managerial power and agency theory CEO duality exhibits a positive relationship with executive remuneration, while board size and board independence also reveal a positive association with executive pay, indicating board ineffectiveness in reducing managerial entrenchment. Interestingly, non-state-owned enterprises report a negative relationship of board size with executive remuneration which means non-state-owned enterprises with larger board size tend to reduce executive pay because they may have better control and monitoring. Following the managerial power propositions, CEO duality weakens the performance sensitivity of executive pay, but contrary to agency theory the impact of board independence on this sensitivity is in contrast and weakens the relationship of managerial pay and performance, making the independent director's role ambiguous.