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Government's Say‐on‐pay Policy and Corporate Risk‐taking: Evidence from China
Author(s) -
Su Kun,
Jiang Haiyan,
Tian Gary
Publication year - 2020
Publication title -
abacus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.632
H-Index - 45
eISSN - 1467-6281
pISSN - 0001-3072
DOI - 10.1111/abac.12205
Subject(s) - executive compensation , shareholder , business , china , government (linguistics) , economic interventionism , intervention (counseling) , sample (material) , compensation (psychology) , causality (physics) , accounting , corporate governance , monetary economics , economics , finance , psychology , linguistics , philosophy , chemistry , physics , chromatography , quantum mechanics , psychiatry , politics , political science , psychoanalysis , law
This paper investigates whether the restriction on executive compensation in Chinese state‐owned enterprises (SOEs) imposed by the Government's say‐on‐pay schemes is conducive to corporate risk taking. Using a sample of listed SOEs over the period 2005–2018, we find that the restriction on executive compensation is negatively associated with corporate risk taking, suggesting that regulatory intervention in executive pay may produce unintended consequences. Our analyses also demonstrate that this negative regulatory effect on corporate risk taking is driven by listed SOEs in the growth stage of the business life cycle and by those in the provinces with a significant degree of government intervention. An additional test shows that the negative effect of the pay restriction on risk taking disappears in the SOEs in which managers hold shares, suggesting that an alignment of interests between managers and other shareholders mitigates the negative effect of the pay restriction. Our finding is robust to a batch of tests to alleviate the concerns about self‐selection and reverse causality.