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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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Playback language: English
Abstract
This study investigates the impact of hometown connections between CEOs and chairmen on CEO compensation-performance sensitivity in private Chinese-listed companies. Empirical results suggest that such connections improve sensitivity due to increased reputational concerns. This effect is stronger in regions with strong hometown cultures and high marketization. The study's mechanism tests reveal that externally hired CEOs strengthen this effect, while longer CEO tenure weakens it. The research contributes to the literature on informal institutions and compensation contracts.
Publisher
Humanities & Social Sciences Communications
Published On
Feb 11, 2023
Authors
Di Wang, Zhanchi Wu, Junjie You, Bangzhu Zhu, Rongwu Zhang
Tags
CEO compensation
performance sensitivity
hometown connections
private companies
reputational concerns
China
informal institutions

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