Asymmetric pay-for-performance in Chinese enterprises: Insights from firm-specific and cross-sectional analyses

The study examines wage rigidity and its connection to the pay-for-performance sensitivity (PPS) of Chinese chief executive officers (CEOs). We find that Chinese CEOs are compensated for both recurring and non-recurring business gains but are shielded from losses. The asymmetrical effects of gains and losses are differentiated between state-owned enterprises (SOEs) and non-SOEs, as well as between central and local SOEs. By incorporating corporate governance mechanisms, we find that the CEO compensation is aligned with the efficient contracting hypothesis in SOEs, but fails to find evidence in non-SOEs. The data source is the China Stock Market & Accounting Research Database (CSMAR). Our research design involves cross-sectional analyses of 33,166 firm-year observations in Shanghai and Shenzhen stock exchanges from 2005 to 2021 and firm-specific regressions on a sub-sample of 841 firms with a tenure exceeding 15 years.