Title: Do managers influence their own pay? Evidence from stock incentive plans in an emerging market economy
Authors: Huihui Yang; Fei Pan; Siqi Li; Thomas W. Lin
School of Accounting, Shanghai Institute of Foreign Trade, 1900 Wenxiang Road, Songjiang, Shanghai, 201620, China.
School of Accounting, Shanghai University of Finance and Economics, 111 Wuchuan Road, Shanghai, 200433, China.
Department of Accounting, Leavey School of Business, Santa Clara University, 500 El Camino Real, Santa Clara, CA 95053, USA.
Leventhal School of Accounting, Marshall School of Business, University of Southern California, Los Angeles, CA 90089, USA
Abstract: This study examines the extent of managers' opportunistic behaviour in influencing their own executive stock incentive plans in an emerging market economy, namely, China. Using a sample of 53 stock incentive plans in Chinese publicly listed companies during 2006-2007, we find a significant decline in stock prices before the disclosure of stock incentive plans and a significant increase in stock prices shortly after the disclosure, consistent with self-interested managers undertaking self-dealing opportunities to affect the exercise price of incentive plans. We also find that abnormal stock return reversals are more pronounced for non-state-owned enterprises (SOEs) with less independent compensation committees, thus suggesting that strong corporate governance plays an important role in curbing opportunistic behaviour related to stock incentive compensations. Taken together, our findings suggest that managers in Chinese publicly listed companies engage in opportunistic behaviour that maximises their personal compensations.
Keywords: stock option incentives; incentive plans; China; event studies; cumulative abnormal returns; CAR; emerging economies; managerial opportunistic behaviour; managerial pay; managerial self-interest; managers; corporate governance; stock incentive compensation; personal compensation.
Int. J. of Accounting and Finance, 2012 Vol.3, No.4, pp.320 - 342
Date of acceptance: 18 May 2012
Available online: 13 Dec 2012