Restricting CEO Pay Backfires: Evidence from China

Kee-Hong BAE, Zhaoran GONG, Wilson TONG

Research output: Other Conference ContributionsConference Paper (other)

Abstract

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
https://www.aeaweb.org/conference/2019

Conference

ConferenceThe ASSA 2019 Annual Meeting
CountryUnited States
CityAtlanta
Period4/01/196/01/19
Internet address

Fingerprint

China
CEO pay
Chief executive officer
State-owned enterprises
Firm resources
Incentives
Pay-performance sensitivity
Unintended consequences

Cite this

BAE, K-H., GONG, Z., & TONG, W. (2019). Restricting CEO Pay Backfires: Evidence from China. Paper presented at The ASSA 2019 Annual Meeting, Atlanta, United States.
BAE, Kee-Hong ; GONG, Zhaoran ; TONG, Wilson. / Restricting CEO Pay Backfires: Evidence from China. Paper presented at The ASSA 2019 Annual Meeting, Atlanta, United States.
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abstract = "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.",
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BAE, K-H, GONG, Z & TONG, W 2019, 'Restricting CEO Pay Backfires: Evidence from China', Paper presented at The ASSA 2019 Annual Meeting, Atlanta, United States, 4/01/19 - 6/01/19.

Restricting CEO Pay Backfires: Evidence from China. / BAE, Kee-Hong; GONG, Zhaoran; TONG, Wilson.

2019. Paper presented at The ASSA 2019 Annual Meeting, Atlanta, United States.

Research output: Other Conference ContributionsConference Paper (other)

TY - CONF

T1 - Restricting CEO Pay Backfires: Evidence from China

AU - BAE, Kee-Hong

AU - GONG, Zhaoran

AU - TONG, Wilson

PY - 2019/1/6

Y1 - 2019/1/6

N2 - 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.

AB - 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.

M3 - Conference Paper (other)

ER -

BAE K-H, GONG Z, TONG W. Restricting CEO Pay Backfires: Evidence from China. 2019. Paper presented at The ASSA 2019 Annual Meeting, Atlanta, United States.