Top executives' compensation, industrial competition, and corporate environmental performance Evidence from China

Purpose - The purpose of this paper is to empirically investigate how top executives' compensation is associated with environmental performance in the Chinese context and how this association varies with differing levels of industrial competition. Design/methodology/approach - Combining agency and institutional theories, the empirical study is based on a sample of 698 publicly listed firms in China's manufacturing sector. Findings - The authors find that top executives' cash pay has a positive association, and equity ownership a negative association, with corporate environmental performance. Furthermore, in more competitive industries, both pay and ownership are more strongly associated with environmental performance, indicating that industrial competition plays a moderating role in these relationships. Practical implications - The findings imply that different incentive schemes can motivate executives toward environmental management in the Chinese context in opposite directions. They highlight the importance of improving regulation in order to motivate firms to engage in further environmental management. Originality/value - Previous work on the relationship between executives' compensation and socially responsible activities has mainly focussed on developed countries. This study is set in an emerging economy, and identifies new evidence to show that the effect of executive incentives is institutionally specific. In addition, it explores the effect of industrial competition on executives' incentives to engage in environmental management, suggesting an explanation for the contradictory evidence found in previous research.