With the increasing executive-employee pay disparity in recent years, research on executive compensation has grown exponentially. This paper reviews all articles on executive compensation published between 2000 and 2022 in the six accounting journals with the highest impact index in South Korea and China (five journals in China), and evaluates and analyzes the research in both countries. The analysis results are organized as follows: First, the research on executive compensation started earlier in South Korea than in China; second, the focus of the research on executive compensation differs between the two countries; then, the study on the determinants of executive compensation varies between the two countries; forth, the proxies for firm performance are mostly the same in the two countries; and finally, most of the studies in the two countries assert that executive compensation has a positive impact on firm performance. Based on the above research, this paper confirms that the agency theory, which has been widely validated in Western countries, is also valid in Asian countries. In addition, it provides an essential reference for future research on executive compensation in Asian countries.

This research examines the impact of foreign shareholder on executives’ pay stickiness by analyzing China’s listed companies from 2007 to 2021. The analysis finds that foreign shareholder ownership leads to an increase in executive pay stickiness. This is evident in the increased upward pay sensitivity. The individualistic cultural tendency of foreign shareholders and executives’ power play a crucial role in this mechanism. Additionally, the positive impact of foreign ownership on executive pay stickiness is more significant in the sample where foreign shareholders are the actual controllers and the internal and external monitoring is weak. Furthermore, the hypothesis regarding the positive effect of executive pay stickiness is validated by identifying the increasing role of executive pay stickiness in firm innovation and value.

We examine the effect of board members with venture capital experience (i.e., VC directors) on executive incentives at publicly listed firms. VC directors serving on the compensation committee are associated with greater CEO risk-taking incentives (i.e., vega) and greater pay-for-performance sensitivity (i.e., delta). These effects are more substantial if VC directors are from highly reputable VC firms. Using Regulation S-K requirements to disclose attributes of nominated directors as an instrument, we show that these results are causal. We also document that prior finding of greater research intensity and innovation when VC directors serve on boards of public firms are in part explained by the presence of increased risk-taking incentives of the CEO instilled by such directors. Lastly, we find that having VC directors on nominating and/or governance committees is associated with a higher likelihood of forced CEO turnover.

We empirically evaluate 20 prominent contributions to a broad range of areas in the empirical corporate finance literature. We assemble the necessary data and then apply a single, simple econometric method, the connected-groups approach of Abowd, Karmarz, and Margolis (1999), to appraise the extent to which prevailing empirical specifications explain variation of the dependent variable, differ in composition of fit arising from various classes of independent variables, and exhibit resistance to omitted variable bias and other endogeneity problems. In particular, we identify and estimate the role of observed and unobserved firm- and manager-specific characteristics in determining primary features of corporate governance, financial policy, payout policy, investment policy, and performance. Observed firm characteristics do best in explaining market leverage and CEO pay level and worst for takeover defenses and outcomes. Observed manager characteristics have relatively high power to explain CEO contract design and low power for firm focus and investment policy. Estimated specifications without firm and manager fixed effects do poorly in explaining variation in CEO duality, corporate control variables, and capital expenditures, and best in explaining executive pay level, board size, market leverage, corporate cash holdings, and firm risk. Including manager and firm fixed effects, along with firm and manager observables, delivers the best fit for dividend payout, the propensity to adopt antitakeover defenses, firm risk, board size, and firm focus. In terms of source, unobserved manager attributes deliver a high proportion of explained variation in the dependent variable for executive wealth-performance sensitivity, board independence, board size, and sensitivity of expected executive compensation to firm risk. In contrast, unobserved firm attributes provide a high proportion of variation explained for dividend payout, antitakeover defenses, book and market leverage, and corporate cash holdings. In part, these results suggest where empiricists could look for better proxies for what current theory identifies as important and where theorists could focus in building new models that encompass economic forces not contained in existing models. Finally, we assess the relevance of omitted variables and endogeneity for conventional empirical designs in the various subfields. Including manager and firm fixed effects significantly alters inference on primary explanatory variables in 17 of the 20 representative subfield specifications.

Agency theory posits that debt-like compensation (such as defined-benefit pensions and other deferred compensation) aligns managerial interests more closely with those of debtholders and reduces the agency cost of debt. Consistent with theory, we find that a higher CEO relative leverage, defined as the ratio of the CEO's inside leverage (debt-toequity compensation) to corporate leverage, is associated with lower cost of debt financing and fewer restrictive covenants, for a sample of private loans originated during 2006-2008. These findings persist after accounting for the endogeneity of CEO relative leverage, and are more pronounced for firms with higher default risk. Additional analysis on a sample of new public bond issues also shows a negative relation between CEO relative leverage and bond yield spread. Overall, the evidence supports the notion that debtholders recognize the incentive effects of executive debt-like compensation and adjust the terms of corporate debt contracts accordingly.

This paper provides comprehensive description of the practice of corporate executive perquisites (perks) in China, a leading emerging economy. We find that expenses and cash payment related to corporate executive perquisites far exceed the monetary payment to top executives, consistent with the notion that perquisites are used more extensively in emerging markets to motivate and reward corporate executives. In addition to common factors known to influence the level of executive perks, we find a significantly positive link between bank ownership of company shares and executive perquisites. Further analyses suggest that higher level of executive perquisites hurt company operating efficiency and may result from the conflict of interests that banks face as both lenders and shareholders in the emerging markets: banks may choose to side with corporate executives and play less effective monitoring if they are concerned with the security of their loans.

The independent directors of a board can impact CEO pay-performance more effectively if a compensation committee provides information and assist them in designing relevant executive pay schemes. On the basis of this idea, we developed and tested the hypotheses that Chinese firms with a compensation committee have a closer CEO pay link with performance when a larger proportion of independent directors serves on the board. We focused primarily on the effect of a compensation committee on CEO pay-performance relation as a consequence of its help for the board and found that board independence produces a stronger relationship between executive compensation and firm performance in Chinese listed firms. This association is more evident in those firms which have a compensation committee. Our findings suggest that the interaction between independent directors on the board and a compensation committee has important consequences for CEO incentive systems as well as corporate governance structures in China.

Like other major countries in the world, Chinese listed firms have recently experienced a dramatic rise in executive compensation. However, the arguments that could explain the same phenomena in developed countries can not be extended to the case in China. First, most Chinese listed firms are controlled by the state, thus management cannot set their own compensations through captured boards as suggested by Bebchuk and Fried (2004). Second, very few listed firms in China granted stock options and/or common stocks as part of executive compensations prior to 2005. There is little possibility that executives increased their own compensations by offering stock-option plans implied by Bolton et al. (2006). Based on the facts that the legal investor protection has been improved in China, we argue theoretically and empirically in this paper that the rise in executive compensation of Chinese listed firms can be attributed to the enhancement of legal investor protection. Since the management has to give up part of their private benefit with the improvement of legal investor protection, some private benefits extracted by management before have to be paid in an explicit way in order to make management incentive compatible. This finding partially leads to the increasing trend in executive compensations. It therefore provides a new perspective to explain why executive compensations keep rising in this emerging market where legal investor protection has been improving.

Standard principal-agent theory predicts that the pay-performance sensitivity (PPS) decreases in the risk of the firm. An alternative literature argues that entrenched executives as in weakly governed firms use compensation contract to extract the rent, which renders risk irrelevant in determining PPS. This paper uses event study approach to test both principal-agent model and CEO power theory by studying changes in executives’ compensation contract around litigation events. Consistent with principalagent model prediction, we find that, after the initiation of litigation, PPS drops, compensation shifts from performance-sensitive component (equity) to performanceinvariant component (cash). In addition, all the changes reverse themselves after litigation settlements. To test CEO power theory, we further partition the event firms into firms with good and bad corporate governance. We find that the PPS in firms with bad corporate governance increases after lawsuit and decreases after the settlement. This suggests that litigation brings the bad compensation practice of poorly governed firms to the limelight and forces firms to discipline their CEOs temporarily during the litigation period (so called “limelight effect”), which lends indirect support to CEO power theory. Our results are robust to a battery of sensitivity tests including two endogeneity tests.

Using a sample of listed subsidiaries and their parent companies in China, I study top executive compensation and turnover and their relationship to firm performance in business groups in China. The empirical results support the hypothesis that the pay-performance sensitivity of managerial compensation (CEO turnover) in a listed firm is positively (negatively) related to the accounting performance of its parent company. Using related party transactions to proxy for the correlation between the two firms, I find that management compensation in a listed firm is related to the performance of its parent company if related party transactions exist between them. In addition, I find a stronger relationship between the compensation (turnover) in a listed subsidiary and the performance of its parent company when the percentage of common directors and managers are less than median level. This result indicates that the incentive system can be used to align the interests of managers in the listed firm with that of its parent company when the information asymmetry is high and the parent company can not effectively monitor. Using brand name as a proxy for reputation, I find that management compensation and CEO turnover in group firms are more likely to be sensitive to the performance measures in their parent companies if both use the same brand name.