Abstract
Using data on listed firms in China from 2005 to 2016, we find that nonlocal CEOs receive higher compensation than their local peers. More importantly, firms with nonlocal CEOs have lower performance and valuation than those with local CEOs. Heterogeneity analysis indicate that the higher pay of nonlocal CEOs is more prominent for firms with weak external monitoring, for state-owned enterprises, and in regions with a low supply of local talent. Additionally, firms with nonlocal CEOs exhibit lower pay-performance sensitivity and higher managerial perks. Taken together, our evidence supports geography as grounds for CEOs to extract pay premium. It highlights the importance of institutions in understanding the role of geography.
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