Research on the impact of executive compensation on corporate performance during COVID-19—Evidence from ChinaTools Wang, Minxuan (2022) Research on the impact of executive compensation on corporate performance during COVID-19—Evidence from China. [Dissertation (University of Nottingham only)]
AbstractThe pandemic seems to exacerbate principal-agency conflicts since rational executives could reduce unobservable efforts and blame poor operating outcomes on the external recession. This problem might be more severe in China when the central government implements the “zero-COVID” policy, which requires full or partial lockdown to control the cases, impeding firms from normal operating. This thesis aims to test the impact of executive remuneration on firm financial performance during the pandemic and how COVID-19 changes such a correlation. Using fixed-effect panel data analysis of more than two thousand public firms listed on the Shanghai and Shenzhen stock exchanges over the period from 2018 to 2021, this thesis finds that top managers’ monetary pay is positively related to corporate earnings and that such an association is unaffected by the COVID-19. Conversely, compensating executives with more share-based incentives eventually hurts firm performance. Moreover, this negative association is mainly driven by the pre-COVID-19 period, as it detaches during the pandemic. The findings from cash-based pay support agency theory, which implies that monetary compensation seems to be an effective incentive to control executives’ effort-averse behavior and possibly help firms overcome difficulties during distress. However, based on the results from share pay, this study calls for a reform of compensation mechanisms in China, especially emphasizing the long-term alignment of interests between shareholders and executives.
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