{"title":"Effects of minimum wage policies on executive compensation contracts: An empirical analysis in China","authors":"Lei Jian , Meng Wang , Xiaojia Wang , Yan Zhang","doi":"10.1016/j.irfa.2024.103682","DOIUrl":null,"url":null,"abstract":"<div><div>This paper investigates the impact of minimum wage policies on executive pay-for-performance sensitivity (PPS) in the compensation packages of A-share listed firms in China. Using data from 745 counties between 2007 and 2020, we find that minimum wage policies lead to a decrease in PPS. This finding remains robust through instrumental variable approaches, cross-border matching tests, alternative measurements, and other rigorous tests. Moreover, the negative impact of minimum wage on PPS is more pronounced in companies with higher labor dependency, limited ability to pass on labor costs to customers, and lower risk resilience. These results support the hypothesis that rising labor costs due to increased minimum wage, which lead to performance distortion and heightened risk, promote shareholders to reduce PPS to optimize compensation contracts for value maximization.</div></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":"96 ","pages":"Article 103682"},"PeriodicalIF":7.5000,"publicationDate":"2024-10-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Review of Financial Analysis","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1057521924006148","RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
This paper investigates the impact of minimum wage policies on executive pay-for-performance sensitivity (PPS) in the compensation packages of A-share listed firms in China. Using data from 745 counties between 2007 and 2020, we find that minimum wage policies lead to a decrease in PPS. This finding remains robust through instrumental variable approaches, cross-border matching tests, alternative measurements, and other rigorous tests. Moreover, the negative impact of minimum wage on PPS is more pronounced in companies with higher labor dependency, limited ability to pass on labor costs to customers, and lower risk resilience. These results support the hypothesis that rising labor costs due to increased minimum wage, which lead to performance distortion and heightened risk, promote shareholders to reduce PPS to optimize compensation contracts for value maximization.
期刊介绍：
The International Review of Financial Analysis (IRFA) is an impartial refereed journal designed to serve as a platform for high-quality financial research. It welcomes a diverse range of financial research topics and maintains an unbiased selection process. While not limited to U.S.-centric subjects, IRFA, as its title suggests, is open to valuable research contributions from around the world.
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