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Agency Theory and Executive Compensation: The Case of Chinese State‐Owned Enterprises

Taye Mengistae and Lixin Colin Xu
Journal of Labor Economics
Vol. 22, No. 3 (July 2004), pp. 615-637
DOI: 10.1086/383109
Stable URL: http://www.jstor.org/stable/10.1086/383109
Page Count: 23
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Agency Theory and Executive Compensation: The Case of Chinese State‐Owned Enterprises
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Abstract

This article examines the extent to which agency theory may explain chief executive officer (CEO) compensation in Chinese state‐owned enterprises during the 1980s. We find support for the agency theory: CEO pay sensitivity decreases with the variance of performance. Moreover, the performance sensitivity of CEO pay increases with the marginal return to executive action. While the elasticity of pay to sales is slightly smaller than that found for conventional firms in the West generally, our estimate of the semielasticity of pay with respect to profitability is comparable with estimates for regulated industries in the United States.

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