3) 5.688** (0.019)
H shares ownership −0.065 (0.933) −2.047* (0.088)
Intercept 120.575*** (0.000) 89.118*** (0.000) 89.003*** (0.005)
F-value 4.32*** 6.23*** 7.27****
Adjusted R2 0.1391 0.1802 0.2622
CEO compensation is the CEO’s annual compensation in year T, including base salary and cash bonus. Firm size is
measured by total revenue in year T−1. Firm performance is measured by return on assets in year T−1. CEO age is
measured at the end of year T. CEO tenure is the number of years the CEO has occupied his position at the end of year T.
CEO duality is a dummy variable that is equal to 1 when the CEO is also Chairman of the board; 0 otherwise. Board size
(supervisory board size) gives the number of directors (supervisors). Outside directors measures the percentage of nonexecutive
directors among all directors. CEO ownership is the CEO’s percentage shareholding of the firm. State ownership
is the Chinese state’s percentage shareholding of the firm. Legal person ownership is the percentage shareholding of legal
persons. B shares ownership (H shares ownership) is the sum of the top 10 B shareholders’ (H shareholders’) ownership
of the firm. Industry dummies and time dummies are included in the regressions, but are not reported below. P-values are
shown in parentheses.
* Statistical significance at 10% level.
** Statistical significance at 5% level.
*** Statistical significance at 1% level.
4.1. Influence of board structure
The regression results indicate no statistically significant association between CEO compensation
and three of the four corporate governance variables related to board structure (CEO duality,
board size, and SB size). The only statistically significant variable is the proportion of outside
directors. CEOs do not seem to take advantage of their dual position and supposedly greater
control over the board to extract significantly higher compensations. Board size and SB size do
not appear to weaken or corrupt the control of directors and supervisors over CEOs as far as
CEO compensation is concerned. CEOs do not take advantage from larger, thus potentially less
vigilant, boards and SBs to extract significantly higher compensations.
In contrast, Yermack (1996) and Core et al. (1999) document that duality and larger board
size are associated with higher CEO compensation. Also opposite to Brickley et al. (1994), and
Hermalin and Weisbach (1998), who find that outside directors are better at restraining CEOsD. Li et al. / Research in International Business and Finance 21 (2007) 32–49 45
Conversely, CEOs do not seem to be restrained by a strong corporate governance environment to
accept lower pay levels.
On the other hand, there are some indications that the convergence towards global pay standards
suggested by Murphy (1999) and widely publicized in BusinessWeek (2001) has a positive effect
on CEO compensation. A large proportion of outside directors suggest that the firm is closer to
international standards, thus more prepared to offer a higher compensation to retain a qualified
CEO. Murphy (1999) points out that the pay practice adopted by U.S. companies in their foreign
subsidiaries puts pressure on their local competitors to revise their own pay policies upward. In
contrast, firms characterized by a low proportion of outside directors, may signal their slower
adjustment to the external c
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