The optimal managerial incentive mechanism for China’s local and central SOEs: An empirical study of listed companies

Abstract

By studying listed companies, this paper investigates the effects of financial incentives and administrative incentives on the performance of managers in China’s local state-owned enterprises and central state-owned enterprises (SOEs) respectively. We find that administrative incentives are more effective on managers of central SOEs, while financial incentives are more effective on those of local SOEs. We conclude that against the current background of mixed-ownership reform, we should realise the limitations of administrative incentives and broaden the role of financial ones. Moreover, we should find, for SOEs, the optimal incentive combination that is custom-made based on ownership type. In this way, incentive compatibility can be achieved and SOE performance will be enhanced.