{"title":"Blockholder rent appropriation and CEO compensation in an emerging economy: an examination of three types of blockholder–CEO relationships","authors":"Chenguang Hu, Kyung Hwan Yun","doi":"10.1007/s10490-024-09950-8","DOIUrl":null,"url":null,"abstract":"<div><p>This paper examines how principal–principal conflict influences chief executive officer (CEO) compensation in an emerging economy. To reduce the negative influence of blockholder rent appropriation (BRA) on firms, a controlling blockholder (hereafter, the blockholder) with strong power might exploit a CEO, the primary agent of a firm, leading to possible principal–agent (PA) conflict. In this case, such PA conflict can be negatively reflected in the CEO’s compensation contract. Drawing on the social theory of agency, we suggest that the cognitive frameworks and power relations of the blockholder and the CEO influence CEO compensation design. The cognitive framework explains that an optimal compensation design is affected by the social norm of CEO compensation and a CEO’s personal value system in an emerging market. Power relations indicate how blockholders may exercise their power for the optimal stringent CEO compensation design depending on their interdependent relationship with a CEO. Based on the two underlying mechanisms, we examine how BRA influences the compensation of the three types of CEOs who have different cognitive values and power relations with the blockholder, including a blockholder as the CEO, a blockholder-affiliated CEO, and a professional CEO. By analyzing 3,621 listed Chinese firms from 2006 to 2021, we find that BRA negatively affects the compensation of a blockholder CEO and a professional CEO, and has a negligible effect on that of an affiliated CEO. We further find that the negative effect of BRA on compensation is stronger for professional CEOs at state-controlled firms than those at private firms.</p></div>","PeriodicalId":8474,"journal":{"name":"Asia Pacific Journal of Management","volume":"42 3","pages":"1517 - 1563"},"PeriodicalIF":5.8000,"publicationDate":"2024-04-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Asia Pacific Journal of Management","FirstCategoryId":"91","ListUrlMain":"https://link.springer.com/article/10.1007/s10490-024-09950-8","RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"MANAGEMENT","Score":null,"Total":0}
引用次数: 0
Abstract
This paper examines how principal–principal conflict influences chief executive officer (CEO) compensation in an emerging economy. To reduce the negative influence of blockholder rent appropriation (BRA) on firms, a controlling blockholder (hereafter, the blockholder) with strong power might exploit a CEO, the primary agent of a firm, leading to possible principal–agent (PA) conflict. In this case, such PA conflict can be negatively reflected in the CEO’s compensation contract. Drawing on the social theory of agency, we suggest that the cognitive frameworks and power relations of the blockholder and the CEO influence CEO compensation design. The cognitive framework explains that an optimal compensation design is affected by the social norm of CEO compensation and a CEO’s personal value system in an emerging market. Power relations indicate how blockholders may exercise their power for the optimal stringent CEO compensation design depending on their interdependent relationship with a CEO. Based on the two underlying mechanisms, we examine how BRA influences the compensation of the three types of CEOs who have different cognitive values and power relations with the blockholder, including a blockholder as the CEO, a blockholder-affiliated CEO, and a professional CEO. By analyzing 3,621 listed Chinese firms from 2006 to 2021, we find that BRA negatively affects the compensation of a blockholder CEO and a professional CEO, and has a negligible effect on that of an affiliated CEO. We further find that the negative effect of BRA on compensation is stronger for professional CEOs at state-controlled firms than those at private firms.
期刊介绍：
The Asia Pacific Journal of Management publishes original manuscripts on management and organizational research in the Asia Pacific region, encompassing Pacific Rim countries and mainland Asia. APJM focuses on the extent to which each manuscript addresses matters that pertain to the most fundamental question: “What determines organization success?” The major academic disciplines that we cover include entrepreneurship, human resource management, international business, organizational behavior, and strategic management. However, manuscripts that belong to other well-established disciplines such as accounting, economics, finance, marketing, and operations generally do not fall into the scope of APJM. We endeavor to be the major vehicle for exchange of ideas and research among management scholars within or interested in the broadly defined Asia Pacific region.Key features include:
Rigor - maintained through strict review processes, high quality global reviewers, and Editorial Advisory and Review Boards comprising prominent researchers from many countries.
Relevance - maintained by its focus on key management and organizational trends in the region.
Uniqueness - being the first and most prominent management journal published in and about the fastest growing region in the world.
Official affiliation - Asia Academy of ManagementFor more information, visit the AAOM website:www.baf.cuhk.edu.hk/asia-aom/ Officially cited as: Asia Pac J Manag
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