Government Ownership, Top Management Team’s Pay Dispersion and Firm Performance

61 Pages Posted: 30 Jul 2018 Last revised: 16 Sep 2020

See all articles by Wei Jiang

Wei Jiang

Jinan University

Bin Ke

National University of Singapore

Hong Ru

Nanyang Business School, Nanyang Technological University

Yue Xu

Sun Yat-Sen University (SYSU)

Date Written: September 14, 2020

Abstract

We examine how government ownership affects the top management team’s (TMT) pay dispersion and how such TMT pay dispersion affects subsequent firm performance. We test three competing views on the influences of government ownership, referred to as the agency view, the equity view, and the social-political view. The agency view and equity view assume an SOE’s objective is to maximize shareholder value while the social-political view assumes that an SOE pursues broader social and political objectives preferred by the government. Consistent with both the equity view and social-political view, the TMT pay dispersion is lower for SOEs than for non-SOEs. Consistent with the social-political view but not consistent with the equity view, we find that the TMT pay dispersion is lower for central government-controlled SOEs, especially those whose CEOs or board chairmen have higher political promotion prospects. Consistent with the social-political view, we also find that lower TMT pay dispersion induced by government ownership reduces firm performance. We also decompose the total TMT pay dispersion into the vertical pay dispersion between the CEO and other TMT members and the horizontal pay dispersion among the non-CEO TMT members. Our results hold for both the vertical and horizontal TMT pay dispersions. Overall, our results suggest that SOEs’ TMT pay dispersion is not designed to maximize shareholder value, supporting the social-political view.

Keywords: top management team; managerial pay dispersion; China; government control; firm performance

JEL Classification: D73, G30, L33

Suggested Citation

Jiang, Wei and Ke, Bin and Ru, Hong and Xu, Yue, Government Ownership, Top Management Team’s Pay Dispersion and Firm Performance (September 14, 2020). Available at SSRN: https://ssrn.com/abstract=3221600 or http://dx.doi.org/10.2139/ssrn.3221600

Wei Jiang (Contact Author)

Jinan University ( email )

Huang Pu Da Dao Xi 601, Tian He District
Guangzhou, Guangdong 510632
China

Bin Ke

National University of Singapore ( email )

Mochtar Riady Building, BIZ 1, #07-53
15 Kent Ridge Drive
Singapore, 119245
Singapore
+6566013133 (Phone)

Hong Ru

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
(+65) 67904661 (Phone)

HOME PAGE: http://https://hongru.mit.edu/

Yue Xu

Sun Yat-Sen University (SYSU) ( email )

Guangzhou, Guangdong
China

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