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CEO bonding: who posts performance bonds and why?

Bryson, Alex and Forth, John and Zhou, Minghai (2012) CEO bonding: who posts performance bonds and why? NIESR discussion papers, 389. The National Institute of Economic and Social Research, London, UK.

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Identification Number: 389

Abstract

Despite their theoretical value in tackling principal-agent problems at low cost to firms there is almost no empirical literature on the prevalence and correlates of performance bonds posted by corporate executives. Using data for China we examine their incidence and test propositions from principal-agent theory regarding their correlates. Around one-tenth of corporations deploy performance bonds. They are sizeable relative to CEO cash compensation. Ceteris paribus, CEO\\\'s posting performance bonds are more likely than other CEO\\\'s to have their compensation linked to firm performance in other ways and the elasticity of their pay with respect to firm performance is greater. They are also more likely to hold company stock. Thus bonds appear to be complements to rather than substitutes for other forms of corporate incentive. The negative association between bonds and sales volatility is consistent with principal-agent theory. Positive associations between performance bonds and firm age, the CEOs ranking in the Communist Party, and city-level clustering in the use of bonds are all consistent with

Item Type: Monograph (Discussion Paper)
Official URL: http://www.niesr.ac.uk/index.html
Additional Information: © 2012 The Authors
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HG Finance
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 29 Aug 2012 12:45
Last Modified: 29 Aug 2012 12:45
URI: http://eprints.lse.ac.uk/id/eprint/45620

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