The Impact of Institutional Investors’ Holdings on Performance Sensitivity to Management Compensation in China

In recent years, institutional investors have developed rapidly, and have gradually developed into a trend of growing multi-type institutional investors. Management compensation system, as an important part of corporate governance, is a system that institutional investors often pay attention to. And the performance sensitivity to management compensation can precisely measure the improvement of corporate governance of corporate investors, showing the convergence of management and shareholders’ goals. Therefore, it is meaningful to discuss the relation between institutional investor's shareholding and company management compensationperformance sensitivity. This paper combines normative research and empirical research, combs and summarizes domestic and foreign literature, and puts forward some research hypotheses. In terms of empirical research, this paper selects Chinese listed companies as research samples to study the influence of overall institutional investors and different types of institutional investors on the performance sensitivity to listed companies' management compensation. There is a positive correlation between the overall institutional investor's shareholding and performance sensitivity to management compensation. Compared with trading institutional investors, stable institutional investors are more able to increase the performance sensitivity to management compensation in Chinese listed companies

East meets west? Determinants of Chinese firms\u27 response to pressures towards international corporate governance standards

The diffusion of corporate governance standards globally has received special attention from researchers in an increasingly globalized economy. This topic is particularly significant in emerging economies as they encounter both economic pressures to adopt international governance standards and pressures to conform to local institutional resistance to change in governance. Drawing on multi-theoretical perspectives including agency theory, resource dependence theory and institutional theory, this study examines the role of CEO and board characteristics, ownership structure, prior firm performance, and firm’s selection of accounting standards and auditing firms in determining Chinese publicly listed firms’ responses to pressures to adopt international governance standards. This study finds that (1) Chinese publicly listed firms with better prior performance measured by ROA are more likely to be early adopters of international governance model; (2) in general, the antecedents of CEO and board characteristics are not significant predictors of firms’ adoption of international governance standards; (3) direct (ownership) and indirect links to Chinese government play significant roles in shaping firms’ governance standards and practice; and (4) firms’ ownership structure particularly proportion of tradable shares and presence of foreign ownership are significant predictors of firms’ corporate governance orientation, while ownership concentration is not. This research enriches the bodies of international corporate governance literature and contributes to institutional change literature by empirically testing how firms facing similar political pressure, functional pressure, and social pressure (Oliver, 1992) produce heterogeneous strategic responses in an emerging context. It also contributes practically to the development of government business policy and effective management of firm strategies in China

The impact of executive incentives on detection of investment opportunities and performance: the case of Chinese listed companies

Since the reform and opening up in 1978, China has realized a significant transition from a centrally planned to a market economy. The reform of the income distribution system is of great significance for promoting this transformation. For private enterprises as its mainstay, the market valuation and the stock performance depend largely on the future investment opportunities of the enterprises, and whether they can grasp investment opportunities and create new growth opportunities in the future is highly dependent on the decision-making ability of their executives. The existing research on the incentive effect of corporate executives mainly focuses on the evaluation of business performance based on financial indicators and there still is a lack of more in-depth examination of the effect of executives grasping and creating investment opportunities, which is key to the incentive for corporate executives. Based on the definition of related concepts and literature review, this thesis analyzes 2,533 non-financial A-share listed companies in Shanghai and Shenzhen stock markets from 2004 to 2013. Through descriptive statistics and Fama-Macbeth cross-sectional two-step regression method it first tests the regulating effect of investment opportunities on the returnvolatility relationship, and then two types of executive incentives, i.e. equity-based incentive and cash-based incentive, by comparing the regulating effect of investment opportunities with or without incentives, and under different incentive strengths. The results show that, consistent with the existing empirical results, the change of individual stock volatility has a significant positive relationship with the stock return, and this positive relationship is more obvious in enterprises with more future investment opportunities. Further, the results obtained by grouping the method of executive incentives and the incentive strength show that the higher the strength of executive incentives (especially equity-based incentives) is, the more obvious the role of investment opportunities is in strengthening the positive relationship between volatility of individual stocks and stock returns. It is showed that executive incentives can help companies grasp or create more investment opportunities, and thus allow capital market valuation of investment opportunities to be reflected by the relationship between the changes in individual stock volatility and stock returns. The research results not only provide a new test for the impact of executive incentives on capital market valuation, however also point out that the grasp and creation of investment opportunities is the key to implementing equity-based incentives among executives.Desde a reforma e abertura de 1978, a China fez uma significativa transformação de uma economia planificada para uma economia de mercado. A reforma do sistema de distribuição de rendimento tem um grande significado na promoção desta transformação. Sendo as empresas privadas o principal esteio da economia de mercado, a valorização e o desempenho das ações dependem essencialmente das oportunidades de investimento futuras e da capacidade de explorar e criar novas oportunidades no futuro, o que é altamente dependente da capacidade de decisão dos seus gestores. A investigação atual sobre o efeito dos incentivos dos gestores foca-se essencialmente na avaliação do desempenho financeiro baseado em indicadores financeiros. Existe uma lacuna na investigação do efeito da capacidade dos gestores em compreender e criar oportunidades de investimento, o que deve ser um elemento chave para os incentivos dos gestores. Com base na definição dos conceitos relacionados e na revisão da literatura, este estudo analisa 2.533 empresas cotadas tipo A, não financeiras, registadas nas bolsas de Shanghai e Shenzhen, entre 2004 e 2013, através de estatística descritiva e do método de regressão em duas etapas de Fama-Macbeth. Começa por testar o efeito regulador das oportunidades de investimento na relação entre rendibilidade e volatilidade e, a seguir, analisa os incentivos baseados na posse de ações e na remuneração em dinheiro, comparando o efeito regulador das oportunidades de investimento com e sem incentivos e sob diferentes níveis dos incentivos. Os resultados mostram que, à semelhança de anteriores estudos empíricos, a mudança de volatilidade de ações individuais tem uma relação positiva e significativa com a rendibilidade e esta relação é mais intensa para empresas com maiores oportunidades de investimento futuras. Para além disso, os resultados obtidos agrupando o método de incentivos e a sua intensidade, mostram que, quanto maior o peso dos incentivos (especialmente os baseados na posse de ações) maior o impacto das oportunidades de investimento no reforço da relação positiva entre volatilidade e rendibilidade. Verifica-se que os incentivos dos gestores ajudam as empresas a identificar e criar maiores oportunidades de investimento, permitindo assim que as avaliações pelo mercado das oportunidades de investimento se reflitam na relação entre volatilidade e rendibilidade das ações. Os resultados desta investigação fornecem um novo teste do impacto dos incentivos dos gestores na valorização do mercado de capitais, confirmando também que a identificação e criação de oportunidades de investimento são essenciais para a implementação de incentivos baseados na posse de ações pelos gestores

Ownership Structure, Board Attributes and the Level of Voluntary Disclosure in GCC Listed Firms

This thesis examines the impact of a number of ownership structures and board of directors’ attributes on the level of voluntary disclosure in the context of the Gulf Cooperation Council (GCC). The sample consists of 220 non-financial listed firms in seven GCC stock exchanges over a three-year period (2014-2016). The study utilizes a disclosure index in order to assess the level of voluntary disclosure. The results of the descriptive statistical analysis reveal a low voluntary disclosure, averaging at 12 per cent, provided by firms in the GCC. The disclosure in terms of various components of voluntary disclosure (e.g. strategic, financial and non-financial) also appears to be in the same range as total voluntary disclosure. In the country wide analysis, the UAE appears to be leading others with an average of around 20 per cent. The findings from the multivariate analysis show that family ownership is significantly associated with the overall voluntary disclosure and this finding seems driven by financial and non-financial components of voluntary disclosure. Institutional ownership is not associated with the overall voluntary disclosure score, however appears to be influencing the non-financial component disclosure. In similar vein, board members’ ownership and audit committee ownership are not significantly associated with the total voluntary disclosure however both these aspects are associated with the strategic and financial components of voluntary disclosure. Board ownership appears to positively impacting the financial component of disclosure and negatively influencing the strategic component of disclosure while audit committee ownership exerts a positive impact on the strategic component of disclosure and a negative one on the financial component of disclosure. Furthermore, the study finds largely consistent evidence that board size and the number of board meetings during the year exert a negative impact on the level of voluntary disclosure suggesting that smaller boards are more effective in promoting transparency, and more meetings during the year could indicate difficulties facing the firms resulting in less disclosure. The study also finds that the holding of additional directorships by the board members exerts a positive impact on the voluntary disclosure level, highlighting that high experience is associated with members sitting in multiple boards; hence they are more effective in enhancing transparency. The study also records a positive and significant relationship between the size of the audit committee and voluntary disclosure. This result suggests that more members on the audit committee increase its effectiveness in monitoring the management and demanding more information. The results of this study also indicate that board independence is positively related to the strategic component of disclosure indicating that the independent members demand more strategic information since they are less involved in the firm compared to insider. This study makes a major contribution to our understanding of the voluntary disclosure practice in the context of GCC firms and its association with a number of different corporate governance factors (ownership and board of directors). The findings of this study will have important policy implications as the GCC market regulators continue to improve the corporate governance environment and transparency level in order to attract more local and foreign investments

China’s Financial System: Opportunities and Challenges

We provide a comprehensive review of China’s financial system, and explore directions of future development. First, the financial system has been dominated by a large banking sector. In recent years banks have made considerable progress in reducing the amount of non-performing loans and improving their efficiency. Second, the role of the stock market in allocating resources in the economy has been limited and ineffective. We discuss issues related to the further development of China’s stock market and other financial markets. Third, the most successful part of the financial system, in terms of supporting the growth of the overall economy, is a non-standard sector that consists of alternative financing channels, governance mechanisms, and institutions. The co-existence of this sector with banks and markets can continue to support the growth of the Hybrid Sector (non-state, non-listed firms). Finally, among the policies that will help to sustain stable economic growth in China are those that reduce the likelihood of damaging financial crises, including a banking sector crisis, a real estate or stock market crash, and a “twin crisis” in the currency market and banking sector.

Corporate Governance, Firm Performance, and Information Leakage: an Empirical Analysis of the Chinese Stock Market

The purpose of this thesis is to analyse the effect of corporate governance on firm performance and information leakage in the Chinese securities market. As one of the major emerging markets in the world, the results of this thesis are valuable not only to the Chinese market, but also to other emerging markets. To achieve this purpose, data is collected from most of the non-financial listed companies in the two Chinese stock exchanges, which are the Shanghai Stock Exchange and the Shenzhen Stock exchange. The data sample covers the period from 2004 to 2008, since there was a series of new reforms in the Chinese stock market at that time. These reforms include new legislation and the reduction of non-tradable shares. Then this thesis employs the panel technique and the pooled OLS to estimate the effect of corporate governance on firm performance and information leakage in Chinese listed companies. Firstly the relationship between corporate governance and firm performance in Chinese companies is empirically evaluated. The empirical results of this thesis find that the ownership structure of Chinese companies will affect their firm performance. In this thesis, proxies of ownership structure include the proportion of institutional ownership, the proportion of the state ownership, the proportion of shareholdings of the largest shareholder, and the proportion of tradable shares in Chinese companies. A greater proportion of institutional ownership has positive effects on firm performance in Chinese companies. Board subcommittees also help Chinese companies to increase firm performance. The market reforms of 2006 also help Chinese companies to increase their firm performance. However, the board of directors and board of supervisors do not affect firm performance in Chinese companies. Secondly, information leakage in the Chinese Stock Market is empirically assessed. If investors receive corporate material information before the public disclosure, this phenomenon is known as information leakage. The thesis finds that information leakage in the Chinese market is widespread. Finally, the thesis empirically examines the effects of corporate governance on information leakage in Chinese companies. Board subcommittees have negative effects on information leakage in Chinese companies. Other variables of corporate governance do not affect information leakage in Chinese companies. Additionally, the thesis finds that market reform promotes more information leakage in Chinese market. On the basis of the empirical results, the thesis provides the following recommendations. First, the Chinese Stock Market needs to reform the relevant legislation. Second, Chinese companies need to reform their ownership structure. These suggestions may strengthen the internal governance of Chinese listed companies, thereby, increasing firm performance and decrease information leakage

The Effect of National Characteristics on Corporate Disclosure Practices: A Case of ASEAN

This paper aims to extend existing literature by indicating the linkage between national institutions and disclosure practices based on a perspective of a group of developing countries, namely ASEAN. Using a sample of 111 non-financial listed companies in five ASEAN countries, covering Indonesia, Malaysia, the Philippines, Singapore, and Thailand, from 2011 to 2015, the empirical result reveals that the extent of corporate disclosure in ASEAN is positively related to the level of regulation quality at 99% confidence levels and positively associated with the level of rule of law at 95% confidence levels, meaning that businesses tend to disclose more information when government agencies provide suitable policies that help to facilitate business growth and serious concern about the quality of contract enforcement. On the other hands, the finding also demonstrates that the level of corporate is negatively connected with the level of political stability and absence of violence, the level of government effectiveness, and the level of control of corruption, meaning that the level of corporate disclosure in ASEAN would be increased when the national environment is unstable and improper for investing in new projects, the government lacks capabilities to promote economic development, and the country has a high rate of corruption. The paper contributes to international disclosure literature by extending an understanding of the effects of national factors on disclosure practices. Distinct from the mainstream of disclosure literature, the obtained results could provide empirical evidence not only for regulators who want to reinforce the regional regulations. Keywords: National Characteristics, Corporate Disclosure, ASEAN, Panel Data Analysis, Listed Compan

Competition and Cooperation in Economics and Business

Asia and the Pacific have become the growth engine of the world economy with the contribution of two-third of the global growth. The book discusses current issues in economics, business, and accounting in which economic agents, as individuals, entrepreneurs and professionals, as well as countries in the Asia and Pacific regions compete and collaborate with each other and with the rest of the globe. Areas covered in the book include economic development and sustainability, labor market competition, Islamic economic and business, marketing, finance, accounting standard compliances, and taxation. It will help shed light on what business and economic scholars in regions have done in terms of research and knowledge development, as well as the new frontiers of research that have been explored and opening up

Deferred executive compensation and double-layered principal-principal conflicts

This research examines the policy effect of ‘salary restriction order’ on the double-layered principal-principal conflicts in Chinese State-Owned Enterprises (SOEs). According to current agency problems in highly concentrated firms in China, this research elaborates on the traditional Type Ⅱ Agency Problem based on the seminal Double-Layered Agency Theory (Raelin and Bondy, 2013) from the second-layered social perspective, arguing both economic-layered principal-principal conflicts between large/controlling shareholders and the economic-layered principals (i.e., minority shareholders and outside creditors) and the overlooked societal-layered principal-principal conflicts caused by the large/controlling shareholders towards the company’s primary social and environmental stakeholders. This new theoretical contribution is defined as the Double-Layered Principal-Principal Theory. Because of the inevitable political affiliation and SOE managers’ special political promotion, corporate governance mechanisms derived from the traditional Agency Theory based on the Western market with separated ownership and control lack effectiveness (Jiang and Kim, 2015; 2020). Moreover, the most commonly used approach in the Type Ⅱ Agency Problem studies, Multiple Large Shareholders (MLS), shows negative collusion among these large shareholders in China. Therefore, this research explores potential corporate governance mechanisms to mitigate the double-layered principal-principal conflicts in Chinese SOEs. Starting January 1st, 2010, the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) required executives and top management team (TMT) in charge of the central enterprises to defer 40% annual performance-based salary in a 3-year tenure. I find this ‘salary restriction order’ provides an appropriate opportunity to examine the policy effects of deferred executive compensation (DEC) on the double-layered principal-principal conflicts the Chinese SOEs are confronting. This research tests panel data of 74 listed SASAC subsidiaries from 2007 to 2015. It uses the ‘salary restriction order’ as an exogenous shock to conduct a quasi-natural experiment to examine the policy effects of DEC on the double-layered principal-principal conflicts. Unlike most US studies, this research found inconsistent results of the CEO Inside Debt Theory (Edmans and Liu, 2011). Rather than risk-moderating, the findings show an insignificant association between DEC and corporate risk and a direct impact on declining dividend pay-out and increasing tunnelling behaviour via related-party transactions. It indicates that DEC may not mitigate the economic-layered risk preference between large shareholders and outside creditors. Even worse, limiting executive pay is likely to accelerate wealth expropriation from large shareholders towards minority shareholders, intensifying the traditional economic-layered principal-principal conflicts. Moreover, consistent with the view of Long-Run Net Social Benefits (Kane, 2002), this research found a direct positive association between DEC and the quality of the social and environmental disclosure index (SEDI), demonstrating that DEC may be a potential corporate governance mechanism to alleviate the societal-layered principal-principal conflicts in Chinese SOEs. The robustness checks, including parallel trend tests and placebo tests, and 2SLS regressions, Sobel tests and Bootstrap tests examining the risk-moderating effect of DEC, are consistent with the previous findings. The findings carry important policy implications. It reveals that limiting executive pay would increase the traditional economic-layered principal-principal conflicts, which are unlikely to play a role in protecting the interests of small and medium-sized investors in China. Therefore, policymakers must consider specific agency problems within the national context when formulating corporate governance regulations. It necessitates a departure from the uncritical application of conventional methodologies. In this case, policymakers in China should avoid straightforwardly cutting down executives’ pay without properly adjusting the length, ratios, or portfolios of other types of deferred compensation and pension plans for the executives’ long-term incentives. The research contributions are as follows. First, elaborating the theoretical framework of the Agency Theory, this research proposes a Double-Layered Principal-Principal Theory, extending beyond the economic-layered principal-principal conflicts to encompass the second societal-layered principal-principal conflicts arising from the large/controlling shareholders towards the company’s primary social and environmental stakeholders in highly concentrated firms. Second, this research establishes a strong theoretical causality in examining the association between DEC and corporate social performance (measured by SEDI). Previous studies failed to demonstrate a theoretical causality between these two variables. Filling the gap, this research reports evidence (Mayberry, 2020) that risk-moderating can serve as a mediator variable to link the association between DEC and corporate social performance. Third, consistent with the literature chapter, the methodology chapter develops a new SEDI to measure the ‘societal-layered principal-principal conflicts’ in China. In addition, the findings enrich the CEO inside debt studies by providing robust evidence showing insignificant correlations between DEC and corporate risk. It also suggests that Chinese policymakers re-evaluate the ‘salary restriction order’ based on its potential consequences.This research examines the policy effect of ‘salary restriction order’ on the double-layered principal-principal conflicts in Chinese State-Owned Enterprises (SOEs). According to current agency problems in highly concentrated firms in China, this research elaborates on the traditional Type Ⅱ Agency Problem based on the seminal Double-Layered Agency Theory (Raelin and Bondy, 2013) from the second-layered social perspective, arguing both economic-layered principal-principal conflicts between large/controlling shareholders and the economic-layered principals (i.e., minority shareholders and outside creditors) and the overlooked societal-layered principal-principal conflicts caused by the large/controlling shareholders towards the company’s primary social and environmental stakeholders. This new theoretical contribution is defined as the Double-Layered Principal-Principal Theory. Because of the inevitable political affiliation and SOE managers’ special political promotion, corporate governance mechanisms derived from the traditional Agency Theory based on the Western market with separated ownership and control lack effectiveness (Jiang and Kim, 2015; 2020). Moreover, the most commonly used approach in the Type Ⅱ Agency Problem studies, Multiple Large Shareholders (MLS), shows negative collusion among these large shareholders in China. Therefore, this research explores potential corporate governance mechanisms to mitigate the double-layered principal-principal conflicts in Chinese SOEs. Starting January 1st, 2010, the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) required executives and top management team (TMT) in charge of the central enterprises to defer 40% annual performance-based salary in a 3-year tenure. I find this ‘salary restriction order’ provides an appropriate opportunity to examine the policy effects of deferred executive compensation (DEC) on the double-layered principal-principal conflicts the Chinese SOEs are confronting. This research tests panel data of 74 listed SASAC subsidiaries from 2007 to 2015. It uses the ‘salary restriction order’ as an exogenous shock to conduct a quasi-natural experiment to examine the policy effects of DEC on the double-layered principal-principal conflicts. Unlike most US studies, this research found inconsistent results of the CEO Inside Debt Theory (Edmans and Liu, 2011). Rather than risk-moderating, the findings show an insignificant association between DEC and corporate risk and a direct impact on declining dividend pay-out and increasing tunnelling behaviour via related-party transactions. It indicates that DEC may not mitigate the economic-layered risk preference between large shareholders and outside creditors. Even worse, limiting executive pay is likely to accelerate wealth expropriation from large shareholders towards minority shareholders, intensifying the traditional economic-layered principal-principal conflicts. Moreover, consistent with the view of Long-Run Net Social Benefits (Kane, 2002), this research found a direct positive association between DEC and the quality of the social and environmental disclosure index (SEDI), demonstrating that DEC may be a potential corporate governance mechanism to alleviate the societal-layered principal-principal conflicts in Chinese SOEs. The robustness checks, including parallel trend tests and placebo tests, and 2SLS regressions, Sobel tests and Bootstrap tests examining the risk-moderating effect of DEC, are consistent with the previous findings. The findings carry important policy implications. It reveals that limiting executive pay would increase the traditional economic-layered principal-principal conflicts, which are unlikely to play a role in protecting the interests of small and medium-sized investors in China. Therefore, policymakers must consider specific agency problems within the national context when formulating corporate governance regulations. It necessitates a departure from the uncritical application of conventional methodologies. In this case, policymakers in China should avoid straightforwardly cutting down executives’ pay without properly adjusting the length, ratios, or portfolios of other types of deferred compensation and pension plans for the executives’ long-term incentives. The research contributions are as follows. First, elaborating the theoretical framework of the Agency Theory, this research proposes a Double-Layered Principal-Principal Theory, extending beyond the economic-layered principal-principal conflicts to encompass the second societal-layered principal-principal conflicts arising from the large/controlling shareholders towards the company’s primary social and environmental stakeholders in highly concentrated firms. Second, this research establishes a strong theoretical causality in examining the association between DEC and corporate social performance (measured by SEDI). Previous studies failed to demonstrate a theoretical causality between these two variables. Filling the gap, this research reports evidence (Mayberry, 2020) that risk-moderating can serve as a mediator variable to link the association between DEC and corporate social performance. Third, consistent with the literature chapter, the methodology chapter develops a new SEDI to measure the ‘societal-layered principal-principal conflicts’ in China. In addition, the findings enrich the CEO inside debt studies by providing robust evidence showing insignificant correlations between DEC and corporate risk. It also suggests that Chinese policymakers re-evaluate the ‘salary restriction order’ based on its potential consequences