Abstract: Whether the executive compensation contract is effective is related to the effect of compensation incentives, which is not only affected by the rent-seeking of the management, but also by the supervision of the major shareholders. The interlocking shareholders may have the two effects, i.e., the governance synergy effect and the collusion effect, due to their attention to the maximization of portfolio value. Therefore, it is noteworthy whether the interlocking shareholders have an impact on the validity of the executive compensation contract and what kind of impact will be produced. Taking the A-share listed companies from 2004 to 2019 as the research objects, this paper empirically tests the influence of the interlocking shareholders on the validity of the executive compensation contracts. The findings show that the interlocking shareholders can promote the effectiveness of executive compensation contracts by improving the company information environment, promoting the flow of executive compensation information and enhancing supervision strength, which means the governance synergy effect is given a full play. The results of the cross-sectional analysis show that the interlocking shareholders of both share controlling type and institutional investment type can play a significant role in the governance, but the interlocking shareholders of non-share controlling type or non-institutional investment type have no significant influence on executive compensation contracts. This study provides empirical evidences for the comprehensive and correct understanding of the function of interlocking shareholders and the decision basis for the regulatory authorities to rationally guide the interlocking shareholders to play their roles and to promote the development of the interlocking shareholders of both the share controlling type and the institutional investment type.

Key words: interlocking shareholders, executive compensation contract, controlling interlocking shareholders, interlocking shareholders of institutional investments