A state-stewardship view on executive compensation

• Main Authors: Hao LIANG, RENNEBOOG, Luc, SUN, Sunny Li
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2015
• Subjects: State-stewardship view; agency theory; executive compensation; political connections; Asian Studies; Corporate Finance; Human Resources Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/5006; https://ink.library.smu.edu.sg/context/lkcsb_research/article/6005/viewcontent/A_state_stewardship_view_on_executive_compensation.pdf
• Institution: Singapore Management University

We take a state-stewardship view on corporate governance and executive compensation in economies with strong political involvement, where state-appointed managers act as responsible ‘stewards’ rather than ‘agents’ of the state. We test this view on China and find that Chinese managers are remunerated not for maximizing equity value but for increasing the value of state-owned assets. Managerial compensation depends on political connections and prestige, and on the firms’ contribution to political goals. These effects were attenuated since the market-oriented governance reform. In a social welfare perspective, such compensation stimulates not the maximization of shareholder value but the preservation of the state’s interests.