riod covering 2000–2001. Unfortunately, director compensation, and in particular
CEO compensation, is not systematically reported. We therefore restrict our sample to firms
with available CEO compensation data as well as a complete set of board and shareholding
information. In the end, the sample consists of 296 observations representing a total of
206 firms listed on the Shanghai Stock Exchange (SHSE) and the Shenzhen Stock Exchange
(SZSE).
Summary statistics are presented in Table 2. Panel A indicates that the sample is slightly
over-weighted towards the year 2001 due to the listing of new firms (178 observations are
for year 2001 against 120 observations for year 2000). Consistent with the fact that China
is an emerging economy; a majority of firms comes from the manufacturing/industrial sector
(about two-thirds). The majority of firms have distinct CEOs and Chairmen of the board. Only
12.5% of firms in the sample have CEOs holding dual positions. Finally, it is clearly seen that
the Chinese authorities maintain a controlling position in privatized firms by being the largest
shareholder, either directly in nearly 40% of cases, or indirectly through other state owned companies
in nearly 60% of cases. In only three cases (about 1%) are foreign investors the largest
shareholders.
In Table 2, panel B shows that sample firms are from widely different sizes, with annual
sales ranging from a low of RMB 4.2 million to a high of RMB 14,386 million. CEO compensation
also exhibits significant variations across firms. The lowest paid CEO received only
RMB 3200 while the highest paid CEO is reported to have earned RMB 400,000. Obviously,
the introduction of a market system has resulted in a significant dispersion of management
compensation.12 In contrast to Japanese CEOs, Chinese CEOs are relatively young; the median
age being 45-years old. The average tenure appears to be slightly over 3 years, with a maximum
of 7 years, which is significantly lower than the average tenure of U.S. CEOs (see, e.g. Murphy,
1999).
Chinese boards turn out to be relatively compact and dominated by executive directors. The
typical board consists of about 9–10 directors, an overwhelming majority of whom are executive
directors. On average, just 3.62% of board seats are occupied by outside directors. Supervisory
boards are about half the size of boards of directors.13 Some may consist of only one supervisor.
CEOs in the sample have negligible shareholding in their firms with a median of 0.008% and a
maximum of only 0.207%. All firms in the sample have a majority shareholder with a stake of
more than 5%. Legal persons are the biggest shareholders in most cases (61.41%) followed by
the State in the remaining cases (38.59%). The median ownership by legal persons is 48.18%
against 36.10% for State ownership. B shares and H shares owners are majority shareholders in
12 Firth et al. (2005) report a similar level of CEO pay dispersion over the period 1998–2000 with a minimum of RMB
8000 and a maximum of RMB 1,000,000.
13 The situation has changed significantly after the China Securities Regulatory Commission (CSRC) issued new
guidelinesmandating that companies have three independent board members by 2003.42 D. Li et al. / Research in International Business and Finance 21 (2007) 32–49
3.2. Econometric specification
Three models are estimated. Model 1 restricts the s
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