Sun, Yi (2019) Location and the Design of Executives’ Compensation in China. Masters thesis, Concordia University.
Preview |
Text (application/pdf)
972kBSun_MSc_F2019.pdf - Accepted Version |
Abstract
This article tries to find the effect of a firm’s location on executives’ compensation in China, especially for non-state-owned listed enterprises. Based on the data from 2013-2017, I find that there are significant gaps between executives’ remuneration of companies in smaller cities and that of companies in mega cities. Companies in mega cities pay 33.5% more in equity and 28.4% more in cash to their top managers. After controlling for the cost of living, the gaps are narrowed. Executives in smaller cities earn only 3.7% less in equity compensation and 3.8% more in cash compensation. I also find that top managers in firms in smaller cities have lower pay-for-performance sensitivity. However, the influence of firms’ location on equity-compensation-for-performance sensitivity is insignificant. This result may have some implications for the shareholders of companies in smaller cities as they can increase the proportion of equity-based compensation to connect their interests and executives’ interests better.
| Divisions: | Concordia University > John Molson School of Business > Finance |
|---|---|
| Item Type: | Thesis (Masters) |
| Authors: | Sun, Yi |
| Institution: | Concordia University |
| Degree Name: | M. Sc. |
| Program: | Finance |
| Date: | 19 May 2019 |
| Thesis Supervisor(s): | Ullah, Saif |
| Keywords: | Executives’ compensation, Pay-for-performance sensitivity, Firm location, China |
| ID Code: | 985493 |
| Deposited By: | Yi Sun |
| Deposited On: | 19 Dec 2019 14:27 |
| Last Modified: | 19 Dec 2019 14:27 |
References:
Addario, S. D. & Patacchini, E. (2008). Wages and the city. Evidence from Italy. Labour Economics, 15, 1040–1061.Adithipyangkul, P., Alon, I., & Zhang, T. (2011). Executive perks: Compensation and corporate performance in China. Asia Pacific Journal of Management, 28(2), 401–425.
Aggarwal, R., Hu, M., & Yang, J. (2013). Fraud, market reaction, and the role of institutional investors in Chinese listed firms. SSRN Electronic Journal, 41(5).
Bacolod, M., Blum, B. S., & Strange, W. C. (2009). Skills in the city. Journal of Urban Economics, 65, 136–153.
Bae, K. H., Stulz, R. M., & Tan, H. (2007). Do local analysts know more? A cross-country study of the performance of local analysts and foreign analysts. Journal of Financial Economics, 88, 581–606.
Barker, D. & Loughran, T. (2007). The geography of S&P 500 stock returns. Journal of Behavioral Finance, 8(4), 177–190.
Bergh, D. D., & Gibbons, P. (2011). The stock market reaction to the hiring of management consultants: A signaling theory approach. Journal of Management Studies, 48(3), 544–567.
Bhabra, H. S. & Hossain, A. T. (2018). Does location influence executive compensation? Evidence from Canadian SMEs. Journal of Management & Governance, 22(1), 89–109.
Bouwman, C. H. S. (2012). The geography of executive compensation. Working paper, Case Western Reserve University and Wharton Financial Institutions Center.
Brennan, M. J. & Cao, H. H. (1997). International portfolio investment flows. Journal of Finance, 52(5), 1851-1880.
Brown, J. R., Ivković, Z., Smith, P. A., & Weisbenner, S. (2004). The geography of stock market participation: The influence of communities and local firms. NBER Working Paper No. 10235.
Buck, T., Liu, X., & Skovoroda, R. (2008). Top executive pay and firm performance in China. Journal of International Business Studies, 39, 833–850.
Burkart, M., Gromb, D., & Panunzi, F. (1997). Large shareholders, monitoring, and the value of the firm. Quarterly Journal of Economics, 112(3), 693–728.
Carpenter, J. N. (2000). Does option compensation increase managerial risk appetite? Journal of Finance, 55(5), 2311–2331.
Chen, J., Ezzamel, M., & Cai, Z. (2011). Managerial power theory, tournament theory, and executive pay in China. Journal of Corporate Finance, 17, 1176–1199.
Chen, T. K. (2016). Does geography matter in a geographically small and culturally homogeneous country? Firm location and corporate credit risk. International Review of Economics and Finance, 44, 323–348.
Ciccone, A. (2002). Agglomeration effects in Europe. European Economic Review, 46, 213–227.
Conyon, M. J. & He, L. (2008). Executive compensation and CEO equity incentives in China’s listed firms (CRI 2009-006). Retrieved from Cornell University, ILR School.
Conyon, M. J. & He, L. (2011). Executive compensation and corporate governance in China. Journal of Corporate Finance, 17 (2011), 1158–1175.
Coval, J. D. & Moskowitz, T. J. (1999). Home bias at home: Local equity preference in domestic portfolios. Journal of Finance, 55(6), 2045–2073.
Coval, J. D. & Moskowitz, T. J. (2001). The geography of investment: Informed trading and asset prices. Journal of Political Economy, 109(4), 811–841.
Demerjian, P. R., Lev, B., Lewis, M. F., & McVay, S. E. (2013). Managerial ability and earnings quality. The Accounting Review, 88(2), 463–498.
Demerjian, P. R., Lev, B., & McVay, S. E. (2012). Quantifying managerial ability: A new measure and validity tests. Management Science, 58(7), 1229–1248.
Deng, X., & Gao, H. (2013). Nonmonetary benefits, quality of life, and executive compensation. Journal of Financial and Quantitative Analysis, 48(1), 197-218.
Fama, E. F. (1980). Agency problems and the theory of the firm. Journal of Political Economy, 88(2), 288–307.
Firth, M., Fung, P. M. Y., & Rui, O. M. (2006). Corporate performance and CEO compensation in China. Journal of Corporate Finance, 12, 693–714.
Firth, M., Fung, P. M. Y., & Rui, O. M. (2007). How ownership and corporate governance influence chief executive pay in China's listed firms. Journal of Business Research, 60, 776–785.
Francis, B., Hasan, I., John, K., & Waisman, M. (2016). Urban agglomeration and CEO compensation. Journal of Financial and Quantitative Analysis, 51(6), 1925-1953.
Garvey, G. T. & Milbourn, T. T. (2006). Asymmetric benchmarking in compensation: Executives are rewarded for good luck but not penalized for bad. Journal of Financial Economics, 82, 197–225.
Hanlon, M., Rajgopal, S., & Shevlin, T. (2003). Are executive stock options associated with future earnings? Journal of Accounting and Economics, 36, 3–43.
Harford, J. & Li, K. (2007). Decoupling CEO wealth and firm performance: The case of acquiring CEOs. Journal of Finance, 62(2), 917–949.
Hartzell, J. C. & Starks, L. T. (2003). Institutional investors and executive compensation. Journal of Finance, 58(6), 2351–2374.
He, L. (2008). Do founders matter? A study of executive compensation, governance structure and firm performance. Journal of Business Venturing, 23, 257–279.
Hu, H. W., Tam, O. K., & Tan, M. G. S. (2010). Internal governance mechanisms and firm performance in China. Asia Pacific Journal of Management, 27, 727–749.
Ivković, Z. & Weisbenner, S. (2005). Local does as local is: Information content of the geography of individual investors’ common stock investments. Journal of Finance, 60(1), 267–306.
Jensen. M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323–329.
Jensen. M. C. & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
Jensen. M. C. & Murphy. K. J. (1990). CEO incentives – It’s not how much you pay, but how. Journal of Applied Corporate Finance, 3(3), 36-49.
John, K., Knyazeva, A., & Knyazeva, D. (2011). Does geography matter? Firm location and corporate payout policy. Journal of Financial Economics, 101(3), 533–551.
Kato, T. & Long, C. (2006). Executive compensation, firm performance, and corporate governance in China: Evidence from firms listed in the Shanghai and Shenzhen stock exchanges. Economic Development and Cultural Change, 54(4) (July), 945–983.
Kedia, S. & Rajgopal, S. (2009). Neighborhood matters: The impact of location on broad based stock option plans. Journal of Financial Economics, 92, 109–127.
Kumar, A., Page, J. K., & Spalt, O. G. (2013). Investor sentiment and return comovements: Evidence from stock splits and headquarters changes. Review of Finance, 17, 921–953.
Lam, K. C. K., McGuinness, P. B., & Vieito, J. P. (2013). CEO gender, executive compensation and firm performance in Chinese‐listed enterprises. Pacific-Basin Finance Journal, 21, 1136–1159.
Lippert, R. L. & and Porter, G. (1997). Understanding CEO pay a test of two pay-to-performance sensitivity measures with alternative measures of alignment and influence. Journal of Business Research, 40, 127–138.
Loughran, T. (2008). The impact of firm location on equity issuance. Financial Management, 37, 1-21.
Loughran, T. & Schultz, P. (2005). Liquidity: Urban versus rural firms. Journal of Financial Economics, 78, 341–374.
Lu, Z., Zhu, J., & Zhang, W. (2012). Bank discrimination, holding bank ownership, and economic consequences: Evidence from China. Journal of Banking & Finance, 36, 341–354.
Murphy, K. J. (1999). Executive compensation. Handbook of Labor Economics, 3, 2485-2563.
Pirinsky, C. & Wang, Q. (2006). Does corporate headquarters location matter for stock returns? Journal of Finance, 61(4), 1991–2015.
Spraggon, M. and Bodolica, V. (2011). Post-acquisition structuring of CEO pay packages: Incentives and punishments. Strategic Organization, 9(3), 187–221.
Stotz, O. (2011). The influence of geography on the success of private equity: Investments in listed equity. Applied Financial Economics, 21, 1605-1615.
Wheeler, C. H. (2001). Search, sorting, and urban agglomeration. Journal of Labor Economics, 19(4), 879–899.
Zhang, J. & Chung, J. (2018). Does geographical location matter for managerial compensation design? Journal of Economics and Finance, 42(1), 1–32.
All items in Spectrum are protected by copyright, with all rights reserved. The use of items is governed by Spectrum's terms of access.
Repository Staff Only: item control page
Download Statistics
Download Statistics