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

Figures & data

Figure 1. Schematic Representation of Proposed Relationships.

Source: Author's anaysis.

Table 1. Description of Variables.

Variables	Description
Executive Pay (ExRem)	Log (sum of top 3 highest paid executives)
Firm performance:
Return of equity (ROE)	The ratio of net profit to net equity
Corporate Governance:
Board size (BdSiz)	Number of members on both boards
Board independence (BdInd)	Number of independent members
CEO duality (DuCEO)	Dummy variable and takes value 1 if single person holds dual position and Zero otherwise
Ownership concentration (OwnCon)	The percentage of shares owned by top five shareholders
Control variables:
Firm size (FrmSiz)	Log (total assets)
Growth opportunities (GwtOpp)	Tobin's Q
Firm risk (FrmRsk)	Standard deviation of daily stock returns
Firm leverage (FrmLev)	Ratio of net debt to net assets
Institutional Ownership (IntOwn)	The percentage of shares held by institutions

Source: Author's anaysis.

Table 2. Descriptive statistics.

Variables	Mean	Maximum	Minimum	SD	Lower Q	Median	Upper Q	N
Executive Remuneration(ExRem)	13.493	17.576	8.006	1.039	12.815	13.555	14.22	12659
Return on Equity(RO)	0.056	0.812	−1.34	0.226	0.023	0.07	0.127	13229
Ownership Concentration(OwnCon)	52.132	96.412	0	16.242	40.37	52.56	63.77	13275
Board Size(BdSiz)	9.461	19	0	2.05	9	9	11	13180
Board Independence(BdInd)	3.163	8	0	0.994	3	3	4	13181
CEO-Duality(DuCOEO)	0.132	1	0	0.339	0	0	0	10561
Firm Size(FrmSz)	21.985	28.036	14.077	1.354	21.059	21.854	22.764	13229
Firm Risk(FrmRsk)	0.031	0.051	0.018	0.009	0.023	0.029	0.036	12980
Growth Opportunities(GwtOpp)	1.715	192.9	0.006	3.263	0.68	1.168	2.008	12972
Firm Leverage(FrmLev)	0.536	1.391	0.107	0.21	0.394	0.534	0.666	13229
Institutional Ownership(IntOwn)	4.022	33.416	0.02	4.433	0.75	2.305	5.94	6487

In Table 2 SD is the standard deviation, Lower Q is lower quartile, Upper Q is the upper quartile and N is the number of observation.

Source: Author's anaysis.

Table 3. Correlation matrix.

Variables	VIF	ExRem	ROE	OwnCon	BdSiz	BdInd	DuCEO	FrmSiz	FrmRsk	GwtOpp	FrmLev	IntOwn
ExRem		1
ROE	3.12	0.167*	1
OwnCon	1.14	−0.107*	0.087*	1
BdSiz	1.05	0.061*	0.018*	0.111*	1
BdInd	1.11	0.291*	0.030*	−0.025*	0.526*	1
DuCEO	1.01	0.048*	−0.007	−0.082*	−0.090*	−0.065*	1
FrmSiz	1.79	0.486*	0.107*	0.190*	0.185*	0.314*	−0.081*	1
FrmRsk	1.02	0.022*	−0.002	0.035*	0.003	0.016	−0.005	−0.002	1
GwtOpp	1.36	−0.047*	0.058*	−0.057*	−0.073*	−0.075*	0.063*	−0.284*	0.001	1
FrmLev	1.33	−0.006	−0.122*	−0.074*	0.018*	0.106*	0.001	0.150*	−0.018*	−0.116*	1
IntOwn	1.1	0.083*	0.231*	−0.093*	−0.02	−0.025*	0.019	−0.148*	−0.002	0.137*	−0.034*	1

In Table 3 “*” corresponds to significance level at 5.

Source: Author's anaysis.

Table 4. Baseline static and dynamic pay-performance model.

	Model 1	Overall Firms	Model 2
Variables	OLS	FEM	L-GMM	S-GMM
ExRem-1			0.343***	0.441***
			(0.006)	(0.007)
ROE	1.085***	0.472***	0.455***	0.648***
	(0.182)	(0.112)	(0.024)	(0.023)
OwnCon	0.005**	0.001	0.001	0.007***
	(0.002)	(0.004)	(0.001)	(0.001)
BdSiz	0.036***	−0.007	0.010***	0.029***
	(0.011)	(0.018)	(0.003)	(0.002)
BdInd	0.047	−0.016	0.042***	0.088***
	(0.048)	(0.063)	(0.014)	(0.017)
DuCEO	0.202**	0.136	0.218***	0.207***
	(0.096)	(0.093)	(0.011)	(0.011)
FrmSiz	0.316***	0.651***	0.532***	0.309***
	(0.032)	(0.053)	(0.014)	(0.012)
FrmRsk	1.516	0.346	−1.343***	−2.147***
	(3.563)	(2.409)	(0.204)	(0.309)
GwtOpp	−0.002	0.002	−0.011**	0.002
	(0.012)	(0.012)	(0.001)	(0.001)
FrmLev	0.576***	−0.197	0.226***	0.134**
	(0.188)	(0.24)	(0.076)	(0.068)
IntOwn	−0.009	−0.001	−0.003***	−0.009***
	(0.007)	(0.006)	(0.001)	(0.001)
Constant	6.897***	−0.555	−3.169***	−0.024
	(0.0689)	(1.23)	(0.273)	(0.24)
R-2	0.283	0.208
Adj R-2	0.27
Sargan p-value			0.55	0.35
Arellano-Bond p-value			0.68	0.91

In Table 4 “***”, “**” and “*” corresponds to significance level of 99%,95% and 90% respectively. Values in parentheses correspond to standard errors.

Source: Author's anaysis.

Table 5. Static and dynamic pay model for SOEs and NSOEs.

	NSOEs					SOEs
	Model 1		Model 2			Model 1		Model 2
Variables	OLS	FEM	L-GMM	S-GMM	/	OLS	FEM	L-GMM	S-GMM
ExRem-1			0.379***	0.455***				0.355***	0.414***
			(0.034)	(0.016)				(0.001)	(0.001)
ROE	0.583	0.945**	0.219	0.309**		1.008***	0.285	0.501***	0.620***
	(0.062)	(0.075)	(0.116)	(0.13)		(0.21)	(0.183)	(0.013)	(0.009)
OwnCon	0.011***	0.001	0.008***	0.008***		0.006**	0.002	0.001	0.004***
	(0.003)	(0.005)	(0.002)	(0.001)		(0.002)	(0.005)	(0.001)	(0.001)
BdSiz	−0.028	0.001	0.004	−0.037***		0.057***	−0.012	0.019***	0.038***
	(0.0185)	(0.031)	(0.007)	(0.011)		(0.014)	(0.021)	(0.001)	(0.001)
BdInd	−0.157**	0.004	0.009	−0.043*		0.02	−0.043	0.023***	−0.007
	(0.08)	(0.099)	(0.035)	(0.026)		(0.059)	(0.079)	(0.008)	(0.007)
DuCEO	0.076	0.034	0.072	0.087***		0.195	0.246*	0.201***	0.375***
	(0.113)	(0.122)	(0.075)	(0.024)		(0.139)	(0.132)	(0.01)	(0.007)
FrmSiz	0.551***	0.543***	0.436***	0.389***		0.288***	0.657***	0.460***	0.310***
	(0.061)	(0.071)	(0.056)	(0.046)		(0.039)	(0.075)	(0.007)	(0.006)
FrmRsk	−0.663	−1.546	1.14	−0.417		1.699	−0.092	−1.516***	−3.072***
	(5.499)	(3.907)	(1.829)	(1.004)		(4.283)	(3.037)	(0.253)	(0.272)
GwtOpp	−3.720	−0.001	−0.008*	0.006		0.041	0.027	−0.020**	−0.024**
	(0.013)	(0.014)	(0.004)	(0.004)		(0.024)	(0.029)	(0.003)	(0.002)
FrmLev	−1.037***	0.004	0.131	−0.102		−0.229	−0.448	0.227***	0.384***
	(0.25)	(0.406)	(0.281)	(0.172)		(0.253)	(0.301)	(0.019)	(0.027)
IntOwn	−0.028**	−0.044***	−0.011**	−0.007**		0.001	0.016**	0.013***	0.007***
	(0.011)	(0.01)	(0.005)	(0.003)		(0.009)	(0.008)	(0.001)	(0.001)
Constant	2.923**	2.228	−1.359	−0.663		7.079***	−0.553	−1.822***	0.472***
	(1.318)	(1.625)	(1.052)	(0.902)		(0.852)	(1.754)	(0.158)	(0.112)
R-2	0.55	0.442				0.263	0.172
Adj R-2	0.52					0.245

In Table 5 “***”, “**” and “*” corresponds to significance level of 99%, 95% and 90% respectively. Values in parentheses correspond to standard errors.

Source: Author's anaysis.

Table 6. Moderating effect of corporate governance between pay-performance relationship.

	Overall Firms
	Model 3
Variables	OLS	FEM	L-GMM	S-GMM
ExRem-1			0.332***	0.431***
			(0.006)	(0.006)
ROE	0.024	−0.181	−0.021	0.115***
	(0.237)	(0.215)	(0.049)	(0.034)
OwnCon	0.009**	−0.001	−0.001	0.004***
	(0.002)	(0.004)	(0.001)	(0.001)
BdSiz	0.036***	−0.011	0.007**	0.027***
	(0.011)	(0.017)	(0.003)	(0.003)
BdInd	0.026	−0.005	0.067***	0.063***
	(0.049)	(0.067)	(0.014)	(0.01)
DuCEO	0.224*	0.117	0.252***	0.257***
	(0.129)	(0.11)	(0.022)	(0.02)
ROA X OwnCon	0.042	0.009	0.01	0.033***
	(0.037)	(0.037)	(0.008)	(0.007)
ROA X BdSiz	0.443	1.081**	0.0508***	0.143
	(0.399)	(0.462)	(0.074)	(0.097)
ROA X BdInd	−0.108	−2.092*	−0.680***	0.074
	(0.0040	(0.31)	(0.151	(0.032)
ROA X DuCEO	−1.531	−0.324	−1.361***	−2.118***
	(2.165)	(1.745)	(0.371)	(0.362)
FrmSiz	0.322***	0.647***	0.518***	0.328***
	(0.031)	(0.053)	(0.016)	(0.011)
FrmRsk	2.103	0.362	−1.568***	−1.959***
	(0.455)	(0.0372)	(0.346)	(0.334)
GwtOpp	0.002	−0.004	0.013***	0.007***
	(0.012)	(0.013)	(0.003)	(0.00034)
FrmLev	−0.265	−0.251	0.257***	0.043
	(0.19)	(0.037)	(0.073)	(0.012)
IntOwn	−0.018**	−0.001	0.001	−0.011***
	(0.007)	(0.006)	(0.005)	(0.001)
Constant	6.723***	−0.432	−2.754***	−0.128
	(0.672)	(0.22)	(0.056)	(0.072)
R-2	0.337	0.238
Adj R-2	0.321

In Table 6 “***”, “**” and “*” corresponds to significance level of 99%,95% and 90% respectively. Values in parentheses correspond to standard errors.

Source: Author's anaysis.

Table A1. Notable prior studies from Chinese context on Executive Remuneration.

Authors	Period & Sample	Economic determinants	Ownership style	Board structure
(Groves et al., 1995)	1980s; 769 SOEs	CEO compensation gets higher with accounting profit and with corporate size.
(Bai & Xu, 2005)	1980s; 300 SOEs	CEO pay-performance sensitivity gets lower at accounting profit variance and gets higher at investment intensity.
(Mengistae & Colin Xu, 2004)	1980s; 400 SOEs	CEO compensation sensitivity gets higher at marginal productivity level of CEO but gets lower at accounting variance (profitability) performance.
(Firth et al., 2006)	1998-2002; 549 listed organizations	Bigger organizations are intended to have bigger remuneration.	Compensation likely to be associated with accounting profit under SOEs dominant organizations and more linked with shareholder wealth under private or foreign controlled organizations.
(Kato & Long, 2006)	1998-2002; 937 listed organizations	Compensation relates positive with respect to corporate size and changes with change in stockholder value, but not in respect of ROA.	Firms listed as SOEs have weaker relations in respect of pay-performance than those of listed as private firms.	Lack of leadership duality and independence of directorship found not be to strengthening the linkage of pay-performance.
(Li et al., 2007)	2000-01; 206 listed companies	Remuneration stands positive in respect to (ROA) accounting performance and size of firms.	Foreign shareholdings hold positive influence.	Positive impact with CEO ownership and outside directors but not influenced by other variables of governance.
(Firth et al., 2007)	1997-2000; 549 listed companies	Positive linked with ROA and corporate size, but not linked with stock return and negative with debt ratio.	SOEs have association lower than the foreign holding companies regarding compensation to their concerned executives. The link so as pay-performance regarding incentives with accounting is higher in foreign ownership.	Board size linked as negative. Incentives in pay-performance with accounting hold higher in higher outside directorship organizations but lower regarding duality aspect and stock returns do not hold same association.
(Buck, Liu, & Skovoroda, 2008)	2000-03; 601 listed firms	Positive sites with profit, stockholder value, ROA, firm size and shareholder return.		No impact at all from board size and supervisory board.
(Firth et al., 2010).	2000-05; Firm years: 4233	Pay holds positive concentration to size of organization, stock returns and ROA accounting performance but such induction not hold at perquisites to executives.	No evidence asserts private own companies have higher PPS. Ownership of foreign and private concentrated companies hold for high aspect regard paying their managers. Relation at pay-performance is much stronger in developed regions.
(Ding et al., 2010).	2005, listed firms: 1345 For 2006, firms: 1410	Bigger the organizations, bigger the remuneration.	Foreign concentrated stake ownership companies associated with greater sensitivity (measured through ROE) to pay-performance.	Size of (supervisory) board positively related with pay of executives and also positive link found with the frequency of meetings to (ROE) pay-performance sensitivity.
(Chen et al., 2010)	2001-06; Each year listed firms picked: 502	Positive influence on pay from growth opportunities, ROE and firm size.	Executive remuneration level increases by foreign investment's presence.	Leveling up the executive pay, contributed by CEO ownership, presence of remuneration committee and leadership duality.
(Conyon & He, 2011)	2001-05; (listed) firm years: 5825	Positive association of executive pay to ROA, (firm) size, growth opportunities and association for CEO (equity) incentives to growth opportunities, corporate performance (as positive). Negative relation of CEO incentive to firm risk, size and for executive pay to firm risk (as negative).	Ownership concentration (firms) and SOEs results as lower (executive) compensation and stockholding.	Higher the (executive) pay as larger the number of (independent) directors, (board) size, remuneration committee and presence of (CEO) duality. High pay-performance related with high independent directorship.
(Adithipyangkul et al., 2011)	1999-2004; Firm years: 3706	Positive link of executive (cash) pay and perk (consumption) to growth opportunity, ROA, (firm) size and negative to leverage ratio.	Lower level of remuneration of executives in state run firms.
(Wang & Xiao, 2011)	1999-2005; Firm years: 6670	Executive remuneration links positive with the (firm) growth chances, size and (accounting performance) ROA, whereas, not with stock returns.	Higher sensitivity (accounting) under pay performance for state-run organizations and lower to those organizations which are engaged in tunneling (activities).
(Chen et al., 2011)	1999-2009; Firm years observations: 7518	Top paid management (pay) linked as positive to (corporate) size, EPS (earning-per-share) and ROA (accounting-measure), whereas, the pay gap not associated with Tobin’s Q or ROA but related as positive with EPS.	Executive compensation associated as positive with respect to (ownership) foreign stake organization and negative with respect to state (ownership) stake companies.	Positive relation of (executive) pay with (board) size, (leadership) duality and independent director's percentage.

Source: Author's anaysis.

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