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Does political connection affect sensitivity of executive pay to firm performance? : evidence from China

English Abstract

In this paper, I mainly explore how political connection affects sensitivity of executive cash compensation to firm performance in Chinese listed firms. I find that executive cash compensation level is more determined by accounting earnings rather than stock return due to less developed stock market in China. This paper provides some evidence that the executive pay of private firms with political connection is higher and more sensitive to earnings than those without political connection, because executives holding political right or relationship have more bargaining power to establish management compensation and ask for higher cash compensation from operation profit. Further, I test effect of pay-for performance sensitivity from government control in the same sample years. It also shows positive impact of government control on sensitivity of executive cash compensation to firm performance, even though the compensation level is significant lower than non-state owned enterprises. These findings support my expectation that political intervention may positively affect incentive compensation schemes.

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Yang, Ying Ying


Faculty of Business Administration


Department of Accounting and Information Management


M. Sc.


Corporate governance -- China

Organizational effectiveness -- China

Political planning


Lee, Byung Hee

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