Political connections and agency conflicts: the roles of owner and manager political influence on executive compensation

Political connections and agency conflicts: the roles of owner and manager political influence on... We investigate how political influence affects executive compensation using a sample of publically listed Chinese firms. Our dataset allows us to examine the interplay between manager political influence that arises through government service and owner political influence that arises through state ownership, as they affect executive compensation. We find that politically connected executives receive greater excess compensation from non-state owned firms, but not from state owned firms. Furthermore, our findings indicate that politically connected managers are rewarded for improved performance only when owners do not have substantial political influence, which is consistent with manager political influence being related to a form of managerial entrenchment that can be mitigated by owner political influence. Conceptually, this study adds to the agency theory literature in the field of corporate governance, as it highlights the owner–manager conflict of interest using political influence as a balance of power. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Political connections and agency conflicts: the roles of owner and manager political influence on executive compensation

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Publisher
Springer Journals
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-014-0441-9
Publisher site
See Article on Publisher Site

Abstract

We investigate how political influence affects executive compensation using a sample of publically listed Chinese firms. Our dataset allows us to examine the interplay between manager political influence that arises through government service and owner political influence that arises through state ownership, as they affect executive compensation. We find that politically connected executives receive greater excess compensation from non-state owned firms, but not from state owned firms. Furthermore, our findings indicate that politically connected managers are rewarded for improved performance only when owners do not have substantial political influence, which is consistent with manager political influence being related to a form of managerial entrenchment that can be mitigated by owner political influence. Conceptually, this study adds to the agency theory literature in the field of corporate governance, as it highlights the owner–manager conflict of interest using political influence as a balance of power.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Feb 16, 2014

References

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