The impact of executive payment on firm performance of the financial enterprises in China

Using a panel of Chinese commercial banks over the 2001-2009 period, this study explores the relationship between executive pay and performance, as well as, the comparison of pay-performance sensitivity between managers and directors. Several methods were employed to estimate the relation, with control variables of size and ownership, based on alternative measures of performance. Our analyses revealed that the performance of non-performing loan ratios and ROE have significant effect on director’s compensation. On the contrary, no relation between bank performance and managers compensation was found, and neither any impact of compensation changes on performance. Moreover, according to our results the state control ownership can lower the pay-performance sensitivity. As a conclusion, this research supports that government regulations on bank performance rating and executive compensation are necessary

Relationship between cost of equity capital and voluntary corporate disclosures

The relationship between disclosure and cost of equity capital has always been interesting not only for managers, but for investors as well. Economic theory suggests that by increasing the level of corporate reporting firms not only increase their stock market liquidity, but they also decrease the investors’ estimation risk, arising from uncertainty about future returns and payout distributions. Utilizing the Residual Income Valuation Model, the implied cost of capital is estimated for a sample of 121 Swiss listed, non-financial companies adopting a finite horizon version of the residual income valuation model. The results show that firms on the Swiss market can reduce their cost of equity capital by increasing the level of their voluntary corporate disclosures. The results persist even after controlling for various firm specific risks, such as firm size or financial leverage and regardless of company’s reporting strategy (conservative or aggressive)