Yongli Luo

Executive Compensation, Ownership Structure and Firm Performance in Chinese Financial Corporations

Executive compensation in the U.S. banking industry has been criticized as a root cause of the recent financial crisis. This study examines the relationship between executive compensation, ownership structure, and firm performance for Chinese financial corporations during 2001-2009. The results reveal that executive compensation in Chinese banks follows a relation-based rather than a market-based contract. There is little evidence in support of the pay-for-performance setting for Chinese executive compensation. Ownership concentration has significantly negative impacts while firm size has significantly positive impacts on CEO compensation. Further, the involvement of state ownership tends to limit executive compensation, while the compensation committee is friendly and enhances management compensation. The results suggest that the government or regulation may ensure efficient corporate governance in business activity as a helping hand when corporate governance is weak.

Rumor Clarification and Stock Returns: Do Bull Markets Behave Differently from Bear Markets?

This paper analyzes the effects of official rumor clarification on Chinese stock returns under different market conditions. The results show that the average cumulative abnormal return after the clarification event is significantly positive in a bull market, and significantly negative in a bear market. The results are robust across various types of rumors, including rumors of mergers and acquisitions, asset restructuring, and positive changes in a firms operations. Moreover, in both bull and bear markets, investors are unable to distinguish between rumors that prove true and those that prove false, or between strong and weak rumor denial. Furthermore, investors are also unable to adjust their strategies accordingly.

CEO Compensation, Expropriation and Balance of Power Among Large Shareholders

Purpose: This study explores the probability of expropriation of minority shareholders by controlling shareholders in the form of CEO compensation under an imperfect governance institution by using a novel Chinese dataset over 2001-2010. Design/methodology/approach: We use a direct method to gauge controlling shareholders’ tunneling and expropriation of minority shareholders, and we present a simple model to link corporate governance and the degree of entrenchment by the largest shareholder. We use both Logit and Probit models to predict the likelihood of tunneling and use 2SLS regression to address the endogeneity issues. Findings: There are significant deterioration effects between controlling shareholder’s tunneling and firm performance. Firms with more tunneling activities typically have larger controlling ownership, greater evidence of state control, less balance of power among large shareholders, and weaker board characteristics. Research limitations/implications: The positive relationship between controlling shareholders’ tunneling and executive compensation implies that the controlling shareholder might divert personal benefits from the public firms at the expense of minority shareholders. Originality/value: We focus on the effects of corporate governance restructuring on executive compensation and controlling shareholders’ tunneling in the Chinese context, and we also investigate whether these effects are stronger with the involvement of state ownership. We empirically address the issues between executive compensation and expropriation of minority shareholders.

Cross-listing, managerial compensation and corporate governance

Abstract This study examines the relationship between cross-listing and managerial compensation of Chinese firms that concurrently issued A- and B-shares or A- and H-shares during 2001–2010. The results show that executive compensation is a positive factor to motivate Chinese A-share firms to cross-list as B- or H-shares; it implies that cross-listings could be employed as a way of asset appropriation at the managers’ discretion. The results also confirm that corporate governance is important in determining cross-listings. Under the weak corporate governance institution, Chinese firms were chosen to cross-list based on political considerations rather than on economic merits, serving as a vehicle to signal the quality of state owned enterprises. The results are drawn on agency theory, signalling hypothesis and bonding hypothesis.