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Legislative political connections and CEO compensation in China

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Abstract

In this paper, we argue that the characteristics of ties represent a boundary condition of resource-dependency theory for explaining the benefits of political connections. We support this contention with a study of the linkage between CEO compensation and two types of Chinese legislative political ties: the one to the National People’s Congress (NPC) and the other to the Chinese People's Political Consulative Committee (CPPCC). We find that political ties do not necessarily provide access to critical resources and guarantee higher compensation. Our results suggest that the two legislative political ties represent distinct sources of managerial power resulting in different relationships with CEO pay.

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Notes

  1. In one example, Siyi Zhu, the CEO of Yida Ranliao Development Limited, spent 10 million RMB to acquire an NPC seat according to the official NPC website: http://npc.people.com.cn/GB/12489067.html .

  2. From the official China Security Index site: http://www.csindex.com.cn/sseportal_en/csiportal/zs/jbxx/report.do?code=000938&&subdir=1.

  3. From the official Shanghai Stock Exchange site: http://english.sse.com.cn/home/public/c/en_sserule20090408.pdf.

  4. It is possible that outside board members may exhibit an effect only when they are members of current committees. We defined an alternative measure of Political Board that is equal to 1 if at least one outside director is a member of the national NPC/CPPCC in the sample year t (but excluding the previous NPC/CPPCC experience). All empirical results presented later in the paper do not change qualitatively.

  5. Exp(13.315) = 606,221.

  6. We thank an anonymous reviewer for this suggestion.

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  1. Department of Management, HEC Montreal, 3000, Chemin de la Côte-Ste.-Catherine, Montreal, QC, Canada

    Russell Fralich

  2. Department of Accounting, Sobey School of Business, Saint Mary’s University, 923 Robie Street, Halifax, NS, Canada

    Hong Fan

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Fralich, R., Fan, H. Legislative political connections and CEO compensation in China. Asian Bus Manage 17, 112–139 (2018). https://doi.org/10.1057/s41291-018-0034-x

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