Hui Li, Darren Henry and Xiaohui Wu
The purpose of this paper is to identify means of better associating executive remuneration with managerial decision making and firm performance.
Abstract
Purpose
The purpose of this paper is to identify means of better associating executive remuneration with managerial decision making and firm performance.
Design/methodology/approach
The authors evaluate the influence of conditional accounting conservatism on CEO compensation. The authors focus particularly on the ex ante pay-for-performance sensitivity (PPS) of CEO stock option grants. The empirical method used is panel data regression.
Findings
The authors find that accounting conservatism is positively related to the PPS of CEO option-based compensation. The effects of accounting conservatism on the PPS of options are more significant for firms with relatively weaker corporate governance and for the period before the introduction of FAS 123R. The findings suggest that directors reward CEOs for adopting accounting conservatism, both in general terms and incrementally, and that rewards are channelled through incentive-linked compensation. The results are also consistent with the view that accounting conservatism compliments other mechanisms, such as corporate governance, in reducing information asymmetry and agency problems between managers and shareholders and other stakeholders.
Originality/value
This paper provides a number of important contributions to the literature. It is the first to identify a relationship between accounting conservatism and option-based CEO compensation, which has important potential contracting and enforcement implications due to the incomplete nature of option contracts and the reward and risk attributes of CEOs. This paper is also the first to analyse the association between conditional accounting conservatism and CEO compensation at the firm–year level, by employing the firm–year conservatism score approach proposed by Khan and Watts (2009). This provides for greater insight regarding the interaction between accounting conservatism and other firm-specific elements than is otherwise obtainable from an overall firm or year interpretations derived from the traditional Basu (1997) asymmetric timeliness model approach. Furthermore, this paper also provides a comparison of the relative association of accounting conservatism on both explicit and implicit forms of CEO compensation for the same firm sample. This allows for the assessment of whether accounting conservatism relates differently to incentive-based CEO remuneration relative to ex post CEO compensation outcomes.
Details
Keywords
Jing Dong, Hui Li, Kerry Liu and Xiaohui Wu
The purpose of this paper is to investigate Chinese stock market reaction to the announcements of dividend reductions and omissions.
Abstract
Purpose
The purpose of this paper is to investigate Chinese stock market reaction to the announcements of dividend reductions and omissions.
Design/methodology/approach
The data sets cover the period from 1990 to 2009. A rolling portfolio approach is performed and the Fama–French three-factor model is used to calculate the post-announcement long-term abnormal returns. The matching method and the sub-sample tests are used to examine the robustness.
Findings
After controlling for firm size, the unexpected earnings and government ownership, no evidence of the dividend announcement drift is found. The results also show that the government ownership and the large trading play a role in explaining the post-announcement abnormal returns.
Originality/value
This is the first study concerning the Chinese market that examines the Chinese stock market reaction to dividend cut and omission using a long-time period of data.
Details
Keywords
Communist Party control over businesses in China.
Details
DOI: 10.1108/OXAN-DB223981
ISSN: 2633-304X
Keywords
Geographic
Topical
Xiaohui Wu and Hui Li
In 2001, the China Securities Regulatory Commission required that at least one-third of the members of corporate boards of directors come from outside the organization. The…
Abstract
Purpose
In 2001, the China Securities Regulatory Commission required that at least one-third of the members of corporate boards of directors come from outside the organization. The purpose of this paper is to investigate the impact of this change of regulation on corporate governance in China. In particular, the authors examine whether the increase in the proportion of outsider directors can increase the monitoring quality of the board.
Design/methodology/approach
The basic empirical methodology is a logit regression in which the dependent variable is a binary variable that represents one of the three “negative events” identified as the indicators of poor monitoring quality. The independent variables are firm-level control variables.
Findings
Using Chinese stock data from 1999 to 2005, the authors find that the resulting increase in board independence has reduced the occurrence of connected transactions and violations such as financial statement fraud, illegal insider trading, and asset misappropriation. However, this positive effect of board independence is not uniform across firms. The authors show that a higher degree of fundamental uncertainty in a firm impedes the effectiveness of board independence. The authors also document that the level of board independence is positively associated with firm performance, as measured either in stock market return or accounting return.
Originality/value
In this paper, the authors aim to investigate the effectiveness of outsider directors in a more direct way than has previous research. The authors measure the improvement in the quality of board monitoring by the reduction of the likelihood of those corporate events that could reduce firms’ value. In particular, the authors examine the relationship between the board independence and the occurrence of “negative” corporate events in China. To the best of the knowledge, this is the first study that explores the link between board independence and the probabilities of these events.
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Keywords
CHINA: Tycoon's arrest will intimidate financial firms
Details
DOI: 10.1108/OXAN-ES229993
ISSN: 2633-304X
Keywords
Geographic
Topical
Private sector tycoons and elite politics in China.
Details
DOI: 10.1108/OXAN-DB222069
ISSN: 2633-304X
Keywords
Geographic
Topical
Prospects for China in the second half of 2017.
Details
DOI: 10.1108/OXAN-DB221676
ISSN: 2633-304X
Keywords
Geographic
Topical
Liang Shao, Liang Wang, Zaiyang Xie and Hua Zhou
Viewing the domestic downside risk as a “pushing” factor for outward foreign direct investment (OFDI), this study aims to examine the surge in Chinese cross-border acquisitions…
Abstract
Purpose
Viewing the domestic downside risk as a “pushing” factor for outward foreign direct investment (OFDI), this study aims to examine the surge in Chinese cross-border acquisitions (CBAs) between 2008 and 2017, a unique window when private firms in China were allowed to conduct CBAs.
Design/methodology/approach
This study examines the effect of down-side risk on cross-border acquisition performance by using the sample of Chinese A-share listed companies from 2008 to 2017. Specifically, this study considers three kinds of systemic risk, systematic risk and idiosyncratic risk, and respectively examines their impact on CBAs activities; this study also investigates their subsequent results after CBAs activities. The contingency effect of state ownership on the above relationship is also discussed.
Findings
The findings reveal that pre-CBA systemic risk explains the volume of CBA activities; CBAs are followed by a reduction in systemic risk; the interactions between systemic risk and CBAs decrease with the level of state ownership; and the above results do not hold for traditional risk measures (i.e. systematic risk and idiosyncratic risk).
Originality/value
This study contributes to the literature by revealing the role of systemic risk as a “pushing” factor in the context of OFDI and suggesting an alternative explanation for CBAs from China: Chinese firms (especially private firms) took advantage of the rare opportunity between 2008 and 2017 given by the government to transfer assets overseas through CBA.
Details
Keywords
The downfall of China CEFC Energy Company.
Details
DOI: 10.1108/OXAN-DB232186
ISSN: 2633-304X
Keywords
Geographic
Topical
The meeting ended with a call for high incomes to be regulated and for the rich to 'give back' more. It followed a series of dramatic regulatory actions against large private…