Work

Independent directors’ political connections and CEO compensation: Evidence from China

Year: 2025

Type: article

Abstract: This study investigates the relationship between independent directors' political connections and chief executive officer (CEO) compensation in Chinese listed firms from 2009 to 2018. Our empirical analysis reveals that politically connected independent directors (PCIDs) significantly reduce excessive CEO compensation. Channel tests demonstrate that this effect stems from PCIDs’ enhanced negotiation power relative to CEOs. The negative association between PCIDs and CEO compensation is attenuated in firms with politically connected CEOs but amplified in firms benefiting from substantial preferential bank loans and government subsidies. Heterogeneity analysis further shows that this negative relationship weakens in firms with stronger corporate governance mechanisms and state-owned enterprises (SOEs), while intensifying among firms led by experienced and talented CEOs. Our results remain robust across a battery of endogeneity checks and alternative specifications.

Source: International Review of Economics & Finance

DOI: 10.1016/j.iref.2025.104653

Authors: Yaohua Qin, He Xiao, Jinwen Lin, Luning Song

Institutions: Beijing Normal-Hong Kong Baptist University, Hong Kong Polytechnic University, University of Warwick

Language: English

Topic: Political Influence and Corporate Strategies

Subfield: Strategy and Management

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: gold

Estimated APC paid: $1,930