Restricting CEO Pay Backfires: Evidence from China

Kee-Hong BAE, Zhaoran GONG, Wilson TONG

Research output: Other Conference ContributionsConference Paper (other)peer-review


Using the pay restriction imposed on CEOs of centrally administered state-owned enterprises (CSOEs) in China in 2009, we study the effects of limiting CEO pay. Compared with firms not subject to the restriction, the CEOs of CSOEs experience a significant pay cut. Pay-performance sensitivity for these firms also significantly decreases. In response to the pay cut, CEOs increase their consumption of perks and siphon off firm resources for their own benefit. Ultimately, the performance of these firms drops significantly following the pay restriction. Our findings suggest that restricting CEO pay distorts CEO incentives and brings unintended consequences. Our findings caution against limiting the pay of CEOs.
Original languageEnglish
Publication statusPublished - 6 Jan 2019
Externally publishedYes
EventThe ASSA 2019 Annual Meeting - Georgia, Atlanta, United States
Duration: 4 Jan 20196 Jan 2019


ConferenceThe ASSA 2019 Annual Meeting
Country/TerritoryUnited States
Internet address


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