CHINA FINANCIAL RESEARCH NETWORK
2009-09-22 第2卷 第7期
Cornell UniversityJohnson Graduate School of Management
Central University of Finance and EconomicsSchool of Accounting
Ryerson UniversityTed Rogers School of Management
Chinese University of Hong KongSchool of Accountancy
Warren Bailey Cornell UniversityJohnson Graduate School of Management
We study financial market contracts and signals in a transitional economy where state-controlled banks may lend to weak firms to avert unemployment and social instability. Our sample of Chinese corporate borrowers reveals that that poorer financial performance and higher managerial expenses increase the likelihood of obtaining a bank loan, and bank loan approval predicts poor subsequent borrower performance. Furthermore, negative event-study responses are observed at bank loan announcements, particularly if the borrower measures poorly on quality and creditworthiness. Our results document the dilemmas that arise in a state-led financial system and the local stock market’s sophistication in interpreting news.
Guanmin Liao Central University of Finance and EconomicsSchool of Accounting
Lin, Cai, and Li (1998) argue that under information asymmetry, SOE managers can use state-imposed policy burdens as excuses of poor performance and make the State accountable for it. The argument implies that turnover-performance sensitivity of SOEs decreases as policy burdens increase and that such impact depends on the extent of information asymmetry. Accordingly, this paper empirically explores how policy burdens affect top management turnover of Chinese listed firms between 2000 and 2005. We find that high surplus labor significantly reduces the sensitivity of chairman turnover to performance for state-controlled firms, while private firms do not exhibit such a pattern. Furthermore, our results show that high surplus labor reduces the turnover-performance sensitivity more for firms with greater information asymmetry. Overall, we find strong evidence supporting the implications of Lin, Cai, and Li (1998). In addition, we find that chairman turnover of Chinese firms is sensitive to different performance measures for state-controlled firms and private firms.
Yi Feng Ryerson UniversityTed Rogers School of Management
This study proposes an incentive alignment hypothesis of corporate spin-off activities, in which executive compensation contracts tie the interests of CEOs with those of shareholders and the reduction of agency problems enhances firm value through corporate spin-offs. Consistent with this hypothesis, CEOs with a high level of equitybased compensation are more likely to initiate a spin-off. The announcements of such corporate restructurings are reacted positively by the market. Firms engaging in spin-offs provide greater operating growth in the years following the restructurings compared with their size- and industry-matched control firms. Also consistent with this hypothesis, high incentive CEOs yield more personal gains by selling shares and exercising options following spin-offs.
Wei Yu Chinese University of Hong KongSchool of Accountancy
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.
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