Compensation Reform Plan and Cost Stickiness of Central Enterprises in China

Abstract

The central enterprises of China had enforced Compensation Reform Plan for Central Enterprise Responsible Persons (Reform Plan in short) in January 1st, 2015. The enforcement of this plan had initiated a lot of changes on compensation incentive system. Using the sample of central enterprises listed on the Shanghai and Shenzhen Exchanges from 2012 to 2016, this paper examines the effect of the Reform Plan on cost stickiness. The paper finds: (1) after the Reform Plan, the cost stickiness of central enterprises drops significantly; (2) this relationship is affect by management ownership and ownership concentration of shareholders. While the management ownership is high and ownership concentration of shareholders is low, the Reform Plan restrains cost stickiness is more significantly.