Information-based stock trading and managerial incentives : evidence from China's stock market

Michael  FIRTH; Man JIN; Yuanyuan ZHANG

doi:10.1080/1351847X.2012.672441

Information-based stock trading and managerial incentives : evidence from China's stock market

Michael FIRTH, Man JIN, Yuanyuan ZHANG

Department of Finance and Insurance

Research output: Journal Publications › Journal Article (refereed)

3 Citations (Scopus)

Abstract

This paper uses stock price informativeness, or information-based stock trading, to help explain the pay–performance sensitivity (PPS) of chief executive officer (CEO) compensation in China's listed firms. We argue that higher stock price informativeness, which we measure by the probability of informed trading, helps and encourages shareholders to incentivize the top management team based on stock market performance. The regression results support our argument and show that a higher level of stock price informativeness is associated with higher CEO PPSs. Moreover, the impact of stock price informativeness on CEO incentives is stronger for privately controlled listed firms than it is for state-controlled listed firms. The results also hold when information asymmetry is approximated by the accuracy and dispersion of the earnings forecasts made by financial analysts.

Original language	English
Pages (from-to)	637-656
Number of pages	20
Journal	The European Journal of Finance
Volume	20
Issue number	7-9
Early online date	8 Aug 2012
DOIs	https://doi.org/10.1080/1351847X.2012.672441
Publication status	Published - 2014

Bibliographical note

Special Issue: FIRST CHINESE CAPITAL MARKETS CONFERENCE
The authors gratefully acknowledge the helpful comments and suggestions of Edward Lee (our discussant), two anonymous reviewers, and participants at the Durham University and European Journal of Finance joint conference on the Chinese Capital Market. The authors also thank Jin Gao, Ping Lin, Aristotelis Stouraitis, Sonia Wong, and seminar participants at Lingnan University and the Hong Kong Institute of Business Studies for helpful comments on earlier versions of the paper. Simon Lo and Lili Wang provided excellent research assistance. Zhang gratefully acknowledges the financial support from the Research Committee of Lingnan University (Grant No. DB10A2).

Keywords

compensation
probability of informed trading

Access to Document

10.1080/1351847X.2012.672441

Fingerprint Dive into the research topics of 'Information-based stock trading and managerial incentives : evidence from China's stock market'. Together they form a unique fingerprint.

Cite this

FIRTH, M., JIN, M., & ZHANG, Y. (2014). Information-based stock trading and managerial incentives : evidence from China's stock market. The European Journal of Finance, 20(7-9), 637-656. https://doi.org/10.1080/1351847X.2012.672441

@article{7e3102bfefdb4c8183dace391f66de97,

title = "Information-based stock trading and managerial incentives : evidence from China's stock market",

abstract = "This paper uses stock price informativeness, or information-based stock trading, to help explain the pay–performance sensitivity (PPS) of chief executive officer (CEO) compensation in China's listed firms. We argue that higher stock price informativeness, which we measure by the probability of informed trading, helps and encourages shareholders to incentivize the top management team based on stock market performance. The regression results support our argument and show that a higher level of stock price informativeness is associated with higher CEO PPSs. Moreover, the impact of stock price informativeness on CEO incentives is stronger for privately controlled listed firms than it is for state-controlled listed firms. The results also hold when information asymmetry is approximated by the accuracy and dispersion of the earnings forecasts made by financial analysts.",

keywords = "compensation, probability of informed trading",

author = "Michael FIRTH and Man JIN and Yuanyuan ZHANG",

note = "Special Issue: FIRST CHINESE CAPITAL MARKETS CONFERENCE The authors gratefully acknowledge the helpful comments and suggestions of Edward Lee (our discussant), two anonymous reviewers, and participants at the Durham University and European Journal of Finance joint conference on the Chinese Capital Market. The authors also thank Jin Gao, Ping Lin, Aristotelis Stouraitis, Sonia Wong, and seminar participants at Lingnan University and the Hong Kong Institute of Business Studies for helpful comments on earlier versions of the paper. Simon Lo and Lili Wang provided excellent research assistance. Zhang gratefully acknowledges the financial support from the Research Committee of Lingnan University (Grant No. DB10A2).",

year = "2014",

doi = "10.1080/1351847X.2012.672441",

language = "English",

volume = "20",

pages = "637--656",

journal = "European Journal of Finance",

issn = "1351-847X",

publisher = "Routledge",

number = "7-9",

}

TY - JOUR

T1 - Information-based stock trading and managerial incentives : evidence from China's stock market

AU - FIRTH, Michael

AU - JIN, Man

AU - ZHANG, Yuanyuan

N1 - Special Issue: FIRST CHINESE CAPITAL MARKETS CONFERENCE The authors gratefully acknowledge the helpful comments and suggestions of Edward Lee (our discussant), two anonymous reviewers, and participants at the Durham University and European Journal of Finance joint conference on the Chinese Capital Market. The authors also thank Jin Gao, Ping Lin, Aristotelis Stouraitis, Sonia Wong, and seminar participants at Lingnan University and the Hong Kong Institute of Business Studies for helpful comments on earlier versions of the paper. Simon Lo and Lili Wang provided excellent research assistance. Zhang gratefully acknowledges the financial support from the Research Committee of Lingnan University (Grant No. DB10A2).

PY - 2014

Y1 - 2014

N2 - This paper uses stock price informativeness, or information-based stock trading, to help explain the pay–performance sensitivity (PPS) of chief executive officer (CEO) compensation in China's listed firms. We argue that higher stock price informativeness, which we measure by the probability of informed trading, helps and encourages shareholders to incentivize the top management team based on stock market performance. The regression results support our argument and show that a higher level of stock price informativeness is associated with higher CEO PPSs. Moreover, the impact of stock price informativeness on CEO incentives is stronger for privately controlled listed firms than it is for state-controlled listed firms. The results also hold when information asymmetry is approximated by the accuracy and dispersion of the earnings forecasts made by financial analysts.

AB - This paper uses stock price informativeness, or information-based stock trading, to help explain the pay–performance sensitivity (PPS) of chief executive officer (CEO) compensation in China's listed firms. We argue that higher stock price informativeness, which we measure by the probability of informed trading, helps and encourages shareholders to incentivize the top management team based on stock market performance. The regression results support our argument and show that a higher level of stock price informativeness is associated with higher CEO PPSs. Moreover, the impact of stock price informativeness on CEO incentives is stronger for privately controlled listed firms than it is for state-controlled listed firms. The results also hold when information asymmetry is approximated by the accuracy and dispersion of the earnings forecasts made by financial analysts.

KW - compensation

KW - probability of informed trading

UR - http://commons.ln.edu.hk/sw_master/524

UR - https://www.scopus.com/inward/record.uri?eid=2-s2.0-84903692000&doi=10.1080%2f1351847X.2012.672441&partnerID=40&md5=7ea7376e116f421246e6f3c4d5e40822

U2 - 10.1080/1351847X.2012.672441

DO - 10.1080/1351847X.2012.672441

M3 - Journal Article (refereed)

VL - 20

SP - 637

EP - 656

JO - European Journal of Finance

JF - European Journal of Finance

SN - 1351-847X

IS - 7-9

ER -