The Role of Regional Coordinated Development Policies in Corporate Governance：Quasi-natural Experiment Evidence from Urban Economic Coordination Committee

Abstract

As an important regional integration policy, the mechanism of the Yangtze River Delta Urban Economic Coordination Committee’s（ECC）influence on micro-economic entities has not been thoroughly studied. In fact, through cooperation forums, cooperation topics, business service alliances, etc., ECC provides a communication platform for companies, and forms communication and cooperation between governments and companies. The information spillover generated by ECC can have an impact on the company’s behavior. This paper focuses on the impact of regional coordinated development policies on the executive compensation incentive in corporate governance. Especially, in view of the phenomenon of excess executive compensation prevailing in companies in recent years, this paper specifically examines whether ECC can help to reduce the excess executive compensation, and how can ECC play a governance role through the information spillover? \u3000\u3000Using different cities joining ECC at different times as a quasi-natural experimental situation, based on the data of listed companies in China’s capital market from 2008 to 2016 as the research sample, this paper examines how joining ECC affects excess executive compensation by using the difference-in-differences method. This method compares the difference of the change of executive compensation around joining ECC between companies registered in the member cities of ECC and companies registered in other cities.\u3000\u3000It comes to the following conclusions: First, after controlling the year fixed effect and the company fixed effect, the results of the difference-in-differences method show that joining ECC can significantly reduce excess executive compensation. The result is also of great economic significance. On average, after the company’s city joining ECC, its executive’s excess compensation drops by 11.6%. Second, since the reduction of the executive’s excess compensation is caused by the improvement of the corporate governance mechanism and the reduction of agency problems after the information spillover, the effect is more pronounced for those companies with higher network centrality of the executive, worse information environment and lower total factor productivity. This paper provides new empirical evidence for the economic consequences of regional coordinated development policies from the governance mechanism of micro-economic entities. It has certain enlightenment significance for the national regional coordinated development strategy, economic development, the design of the company’s optimal compensation contract and so on. Generally speaking, this paper extends the existing research from three aspects: First, it contributes to the analysis of the economic effects of regional integration and urban economic coordination, and supplements the empirical evidence of how regional coordinated development policies affect micro-economic entities. Second, it contributes to the related research on excess executive compensation and corporate governance, which shows that the information spillover generated by ECC will lead to the reduction of excess executive compensation, and helps to promote the design of optimal executive compensation. Third, the quasi-natural experiment used in this paper can effectively alleviate the interference of endogenous problems, and help to better identify the causal effect of ECC on the excess executive compensation.