Capital Market Opening and Effectiveness of Executive Compensation Contracts: A Quasi-Natural Experiment Based on the Trading Systems of“Shanghai-Hong Kong”and“Shenzhen-Hong Kong”Stock Connects

Abstract

Abstract: In the policy context of the implementation of the trading system of“Shanghai-Hong Kong”and“Shenzhen-Hong Kong”Stock Connects, this paper employs a multi-time point difference-in-difference model to examine the impact of capital market opening on the effectiveness of the target company’s executive compensation contracts. The findings show that the implementation of the trading system of“Shanghai-Hong Kong”and“Shenzhen-Hong Kong”Stock Connects has significantly improved the effectiveness of the target company’s executive compensation contracts, which is manifested in the improvement of the executive performance-compensation sensitivity. The result of the mechanism test shows that the“Shanghai-Hong Kong”and“Shenzhen-Hong Kong”Stock Connects have improved the effectiveness of the target company’s executive compensation contracts by optimizing their information environment and increasing their information content of the stock prices. Further research also finds out that the governance effect of the trading system of“Shanghai-Hong Kong”and“Shenzhen-Hong Kong”Stock Connects has a continuously enhanced time effect. The trading system of the“Shanghai-Hong Kong”and“Shenzhen-Hong Kong”Stock Connects has also improved the non-lucky performance-compensation sensitivity of the target company’s executives, hence reducing the stickiness of the executive compensation.

Key words: trading system of "Shanghai-Hong Kong" and "Shenzhen-Hong Kong" Stock Connect, performance-compensation sensitivity, non-luck performance, compensation stickiness

CLC Number:

F275.5

SUN Ze-yu, QI Bao-lei. Capital Market Opening and Effectiveness of Executive Compensation Contracts: A Quasi-Natural Experiment Based on the Trading Systems of“Shanghai-Hong Kong”and“Shenzhen-Hong Kong”Stock Connects[J]. Contemporary Finance & Economics, 2021, 0(1): 124-136.

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