Abstract
A rich literature indicates that firm size and firm performance are the main determinants of CEO compensation. However, few papers explore the moderating effects affecting these relationships. Applying managerialism and agency theories within a market reform context, we argue that these main relationships may change depending on the level of marketization and controlling shareholder ownership. Based on the managerialism argument, we contend that the institutional changes that represent promarket economic reforms strengthen the relationships between firm size and performance on the one hand and CEO compensation on the other hand. We further suggest that controlling shareholders improve the alignment of interests between the CEO and shareholders by tying CEO compensation to firm performance according to agency predictions, but decouple the relationship between firm size and CEO compensation. Using a sample of Chinese listed firms between 2001 and 2006, we found that our results largely support these hypotheses.
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