Pay Dispersion Ownership Structure and Firm Performance in China's Listed Firms

30 Pages Posted: 12 Jan 2010 Last revised: 19 Apr 2016

See all articles by Xiaofei Pan

Xiaofei Pan

University of Wollongong

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Aelee Jun

University of Wollongong - Faculty of Commerce - School of Accounting and Finance

Date Written: January 10, 2010

Abstract

This paper investigates pay dispersion and its effects on firm performance in China’s listed firms. Due to weak investor protection and an inefficient legal system, China is expected to have a lower level of corporate governance. In this weak institutional environment, we argue that awarding sufficient power and high pay to CEOs is helpful to increase firm performance. Using data from 2002 to 2007, we find that pay dispersion is related to tournament incentives and agency factors. Importantly, we find evidence that pay dispersion is positively related to firm performance which is consistent with our primary hypothesis. In addition, the relation is more positive when the firm is controlled by the state. Our results are robust to corrections for endogeneity between pay dispersion and firm performance and to several alternative measures of pay dispersion and firm performance.

Keywords: pay dispersion, firm performance, corporate governance

JEL Classification: G32, G34

Suggested Citation

Pan, Xiaofei and Tian, Gary Gang and Jun, Aelee, Pay Dispersion Ownership Structure and Firm Performance in China's Listed Firms (January 10, 2010). Finance and Corporate Governance Conference 2010 Paper, Available at SSRN: https://ssrn.com/abstract=1535165 or http://dx.doi.org/10.2139/ssrn.1535165

Xiaofei Pan (Contact Author)

University of Wollongong ( email )

Wollongong, New South Wales 2500
Australia

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Room 513, Building E4A
North Ryde, NSW, 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Aelee Jun

University of Wollongong - Faculty of Commerce - School of Accounting and Finance ( email )

University of Wollongong NSW
2522
Australia

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