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Does hometown connection between chairmen and CEOs improve compensation-performance sensitivity in China?

Business

Does hometown connection between chairmen and CEOs improve compensation-performance sensitivity in China?

D. Wang, Z. Wu, et al.

This intriguing study by Di Wang, Zhanchi Wu, Junjie You, Bangzhu Zhu, and Rongwu Zhang explores how connections between CEOs and chairmen influence CEO pay based on performance in private Chinese companies. Discover how hometown ties enhance accountability and how factors like culture and tenure play key roles.

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~3 min • Beginner • English
Abstract
Based on a the micro dataset set of private Chinese-listed companies, this study examines the in detail the impact of hometown connections between chief executive officers (CEOs) and chairmen on CEO compensation-performance sensitivity. The empirical results suggest that a hometown connection prompts both the chairman and the CEO to pay more attention to their reputations, which improves CEO compensation-performance sensitivity. This hometown effect is more pronounced when the hometown culture is strong and the degree of marketization is high. The mechanism test reveals that an externally hierd CEO strengthens the influence of a hometown connection on CEO compensation-performance sensitivity, however, this influence weakens with increasing CEO tenure. Overall, this study enriches the literature on informal institutions and compensation contracts and provides valuable insights for company managers and policymakers in emerging markets.
Publisher
Humanities & Social Sciences Communications
Published On
Feb 11, 2023
Authors
Di Wang, Zhanchi Wu, Junjie You, Bangzhu Zhu, Rongwu Zhang
DOI
https://doi.org/10.1057/s41599-023-01549-6
Tags
CEO compensation
performance sensitivity
hometown connections
private companies
reputational concerns
China
informal institutions

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