Are stock option grants to directors of state-controlled Chinese firms listed in Hong Kong genuine compensation?

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

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Detail(s)

Original languageEnglish
Pages (from-to)1547-1574
Journal / PublicationAccounting Review
Volume88
Issue number5
Publication statusPublished - Sep 2013

Abstract

We examine the determinants and consequences of stock option compensation to directors of state-controlled Chinese firms that are incorporated outside China and listed in Hong Kong, referred to as state-controlled Red Chip firms, over the period 1990-2005. We find that state-controlled Red Chip firms granted directors a significant number of stock options in response to the demand of foreign investors. However, state-controlled Red Chip firms forced the directors to forfeit a significant percentage of their vested in-the-money stock options due to a conflict between the highpowered stock option compensation and state-controlled Red Chip firms' unique managerial labor market. We find little evidence that directors' stock option compensation changed the behavior of state-controlled Red Chip firms. Overall, our results are consistent with the media's allegation that the stock options granted to directors of many, if not all, state-controlled Red Chip firms are not genuine compensation.

Research Area(s)

  • China, Corporate governance, Shareholder value, State-controlled firms, Stock option compensation