Executive Compensation, Firm Performance, and State Ownership in China: Evidence from New Panel Data*

This paper provides the first systematic evidence on compensation for executives of firms listed in China’s emerging stock market (currently the eighth largest of the world with market capitalization of over $550 billion). Specifically, using comprehensive financial and accounting data on China’s listed firms from 1998 to 2002 (data modeled after Compustat and CRSP in the U.S.), augmented by unique data on executive compensation, we find for the first time statistically significant sensitivities and elasticities of annual cash compensation (salary and bonus) for top executives with respect to shareholder value in China. The size of the estimated sensitivities imply that a 1000 RMB increase in shareholder value yields a 0.020 RMB to 0.053 RMB increase in annual cash compensation, whereas the size of the estimated elasticities suggest that a 10 percent increase in shareholder value results in 3.7 to 4.0 percent increase in annual cash compensation for top executives. The estimated sensitivities and elasticities of cash compensation for top executives in China’s listed firms are greater than what has been reported for Japan and the U.S. However, we also find that state ownership of China’s listed firms is weakening executive pay-performance link and thus possibly making China’s listed firms less effective in solving the agency problem. As such, ownership restructuring may be needed for the “shareholding experiment” to fully succeed in transforming China’s emerging listed firms to efficient modernized corporations and for the overall successful economic transition of China. Finally, we find that sales growth is significantly linked to executive compensation and that Chinese executives are penalized for making negative profit although they are neither penalized for declining profit nor rewarded for rising profit insofar as it is positive.http://deepblue.lib.umich.edu/bitstream/2027.42/40076/3/wp690.pd

Executive Compensation, Firm Performance, and State Ownership in China: Evidence from New Panel Data*

This paper provides the first systematic evidence on compensation for executives of firms listed in China’s emerging stock market (currently the eighth largest of the world with market capitalization of over $550 billion). Specifically, using comprehensive financial and accounting data on China’s listed firms from 1998 to 2002 (data modeled after Compustat and CRSP in the U.S.), augmented by unique data on executive compensation, we find for the first time statistically significant sensitivities and elasticities of annual cash compensation (salary and bonus) for top executives with respect to shareholder value in China. The size of the estimated sensitivities imply that a 1000 RMB increase in shareholder value yields a 0.020 RMB to 0.053 RMB increase in annual cash compensation, whereas the size of the estimated elasticities suggest that a 10 percent increase in shareholder value results in 3.7 to 4.0 percent increase in annual cash compensation for top executives. The estimated sensitivities and elasticities of cash compensation for top executives in China’s listed firms are greater than what has been reported for Japan and the U.S. However, we also find that state ownership of China’s listed firms is weakening executive pay-performance link and thus possibly making China’s listed firms less effective in solving the agency problem. As such, ownership restructuring may be needed for the “shareholding experiment” to fully succeed in transforming China’s emerging listed firms to efficient modernized corporations and for the overall successful economic transition of China. Finally, we find that sales growth is significantly linked to executive compensation and that Chinese executives are penalized for making negative profit although they are neither penalized for declining profit nor rewarded for rising profit insofar as it is positive.transition economies, China, executive compensation, firm performance, corporate governance, and ownership structure.

Cluster-based industrialization in China: Financing and performance

Clustering, Industrialization, Finance, export, productivity, Development strategies,

FIRM SIZE AND MONITORING

We present a model of optimal monitoring expenditures. For any technology that yields a conventional ``S-shaped''' production function for monitoring, the optimal level of monitoring is shown to be higher in medium-sized firms than in both small and large firms. Further, the interaction between specialization and agency are shown to lead to an ``S-shaped'''' production function.

Tournaments and Managerial Incentives in China's Listed Firms: New Evidence

The promotion tournament as a potentially important incentive mechanism for top management in transition economies has not been examined by the emerging literature on managerial incentives in transition economies. This paper is the first attempt to fill this important gap in the literature. The paper begins with modifying the previously-derived empirical predictions from the tournament theory to the context of transition economies in which state ownership still plays a significant role in publicly-traded firms. Specifically, we test the following two hypotheses. First, the winner's prize will need to increase in order to prevent each contestant from lowering his/her effort level in the face of expanding contestant pool. Such an optimal response of the winner's prize to the size of the contestant pool is more evident for China's listed firms that are less controlled by the state. Second, the winner's prize will also need to rise in order to prevent each contestant from reducing his/her effort level in the face of greater market volatility (or more noise in performance measure used to decide on the tournament winner). Using comprehensive financial and accounting data on China's listed firms from 1998 to 2002, augmented by unique data on executive compensation and ownership structure, we find evidence in support of both hypotheses. Finally, we also find evidence suggesting that an increase in the winner's prize will result in enhanced managerial effort and hence improved firm performance, and that the performance effect of the winner's prize is greater for China's listed firms that are less controlled by the state. As such this paper provides yet another piece of evidence that ownership restructuring may be needed for China to successfully transform its SOEs to efficient modernized corporations and reform its overall economy.tournaments, managerial incentives, ownership structure, China, transition economies

What Determines Technological Spillovers of Foreign Direct Investment: Evidence from China

Using the World Bank survey of 1500 firms in five Chinese cities, we study whether the presence of foreign firms produces technology spillovers on domestic firms operating in the same city and industry. We find positive spillovers for more backward firms. We analyze the channels of such spillovers and find that the transfer of technology occurs through movement of high-skilled workers from FDI firms to domestic firms as well as through network externalities among high-skilled workers. Moreover, these two channels fully account for the spillover effects we find, which demonstrate the importance of well-functioning labor market in facilitating FDI spillovers. Insofar as our results can be generalized to other countries, they reconcile conflicting evidence found in other studies.Foreign direct investment, technological spillovers, labor mobility, network externalities, China

FDI spillovers and firm ownership in China: labor markets and backward linkages

Using firm–level data, we find that the presence of foreign firms in China is positively associated with the performance of domestically owned private firms but is negatively associated with the performance of state–owned enterprises (SOEs). In particular, we find: (1) the presence of foreign direct investment (FDI) is associated with larger differences in the wages and the quality of skilled workers between SOEs and private firms; and, (2) FDI presence is positively associated with private firms’ sales to foreign firms and foreign consumers, but not with the sales of SOEs. We argue that these differences could be due to the fact that private firms have more flexible wage and personnel policies, which allows them to attract talent that facilitates positive FDI spillovers.Investments, Foreign ; China

A Lakota/Nakota/Dakota Model Of Oratory

Lakota/Nakota/Dakota people, as well as other Native American tribal groups, did not traditionally use the established, conventional forms of oration to which most in contemporary mainstream society relate. Rather, Native-specific epistemology, ontology and axiology played a central role in forming and supporting the function of communication as well as the speaking conventions that continue to be used today. These culturally-based patterns and structures present both challenges and opportunities that have been only marginally explored in various disciplines such as education, social and behavioral science, and psychology. This body of work exists for the purpose of exploring a traditionally Native understanding of oratory and communication, the impact of the transition to English on oratorical conventions and the culturally embedded communication practices still with us today. It delineates a model of Lakota/Nakota/Dakota oratory comprised of the traditional practices of formal introduction, acknowledgement of viewpoint, responding indirectly, non-confrontational, utilization of ikce wicasa concept, use of humor, use of storytelling or personal narrative, listening as basis for speaking and formal conclusion. Research findings suggest that these criteria accurately reflect an on-going, culturally-appropriate model of Lakota/Nakota/Dakota oratory

Size, Monitoring and Plea Rate: An Examination of United States Attorneys

A theoretical model relates case mix, staffing, and monitoring to the likelihood of a plea agreement. Analysis of federal drug trafficking cases in fiscal years 1993 through 1996 leads to the following conclusions: There are fewer pleas in districts that are understaffed and are facing more severe crimes. Further, there are fewer pleas in United States Attorney districts with many or with few prosecutors, and there are more pleas in United States Attorney districts with an average number of prosecutors. The explanation for the latter results is that prosecutors may take cases to trial to acquire human capital unless they are closely monitored. Estimation of the monitoring technology shows that it exhibits increasing returns to scale for small districts, and decreasing returns to scale for large districts. Given such a monitoring technology, the relationship between the number of prosecutors and the level of monitoring is consistent with an optimal allocation of resources between monitoring and prosecution.