OWNERSHIP STRUCTURE, ACQUISITIONS AND EXECUTIVE COMPENSATION: EVIDENCE FROM PUBLICLY LISTED CHINESE COMPANIES

Using panel data from China's publicly listed companies (PLCs), this paper investigates the relationship between acquisitions and executive compensation. Empirical analysis based on panel regression reveals that acquisitions lead to a significant increase in executive compensation. Further evaluation, using disaggregated data, shows that acquisitions have a significant and positive impact of executive compensation of state-owned PLCs, but its effect on executive compensation paid by private-owned PLCs is statistically insignificant. The state-owned PLCs give less weight to financial performance compared with private-owned PLCs. State ownership and shareholding concentration increase the executive compensation, which gives rise to a principal-principal type problem. Moreover, using the generalized propensity score (GPS) methodology, which allows one to control for the presence of the selection bias, we find that the compensation-increasing effect of acquisitions for the top executive managers is higher than the effect for the top board directors. Finally, once the selection bias is taken into account, we find that acquisitions have almost no effect on the compensation of lower level executive managers and board directors, which suggests the presence of a principal-agent type problem in the two-tiered governance structure of the Chinese PLCs.