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Article . 2022 . Peer-reviewed
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Chief Audit Executive as Supervisory Board Member and Executive Compensation Contracts

Authors: Meng Lyu; Xiaojie Christine Sun; Bing Wang;

Chief Audit Executive as Supervisory Board Member and Executive Compensation Contracts

Abstract

This paper studies a unique phenomenon in China's corporate governance—that chief audit executives (CAEs) sit on supervisory boards (CAE duality)—and examines its effects on executive compensation contracts. Using a sample of listed firms between 2010 and 2018, we find a significant positive relation between CAE duality and pay‐for‐performance sensitivity, which suggests that the dual position helps integrate monitoring resources and reduces agency costs. This positive relation is more pronounced when companies face a stricter monitoring environment and in non‐state‐owned enterprises (non‐SOEs) than in SOEs. In addition, we find that the recent reforms on compensation strengthen the role of CAE duality in SOEs. Further analysis identifies the reliability of performance information (i.e., earnings quality) and reduced executive self‐interested behaviours (i.e., perquisite consumption) as the influencing mechanisms that increase the demand for performance‐based compensation and thus improve pay‐for‐performance sensitivity.

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
4
Top 10%
Average
Average
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