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How does independent directors’ reputation influence pay‐for‐performance? Evidence from China

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We examine the impact of independent directors’ reputations on executive pay-performance sensitivity. Using hand-collected data from listed Chinese companies from 2012 to 2017, we find a positive association between independent… Click to show full abstract

We examine the impact of independent directors’ reputations on executive pay-performance sensitivity. Using hand-collected data from listed Chinese companies from 2012 to 2017, we find a positive association between independent directors’ reputations and pay-performance sensitivity that is more pronounced in companies with less concentrated ownership. Further, the results show that reputable directors have a stronger influence on pay-performance sensitivity when they sit on a remuneration committee, are in state-owned enterprises, and are in companies with higher agency costs. Our results highlight the monitoring role of reputable independent directors in setting effective executive compensation contracts.

Keywords: independent directors; influence pay; pay performance

Journal Title: Accounting and Finance
Year Published: 2021

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