Information-based stock trading and managerial incentives : evidence from China's stock market
Document Type
Journal article
Source Publication
The European Journal of Finance
Publication Date
2014
Volume
20
Issue
7-9
First Page
637
Last Page
656
Publisher
Routledge
Keywords
probability of informed trading, compensation
Abstract
This paper uses stock price informativeness, or information-based stock trading, to help explain the pay–performance sensitivity (PPS) of chief executive officer (CEO) compensation in China's listed firms. We argue that higher stock price informativeness, which we measure by the probability of informed trading, helps and encourages shareholders to incentivize the top management team based on stock market performance. The regression results support our argument and show that a higher level of stock price informativeness is associated with higher CEO PPSs. Moreover, the impact of stock price informativeness on CEO incentives is stronger for privately controlled listed firms than it is for state-controlled listed firms. The results also hold when information asymmetry is approximated by the accuracy and dispersion of the earnings forecasts made by financial analysts.
DOI
10.1080/1351847X.2012.672441
Print ISSN
1351847X
E-ISSN
14664364
Publisher Statement
Copyright © 2012 Taylor & Francis
Access to external full text or publisher's version may require subscription.
Additional Information
Special Issue: FIRST CHINESE CAPITAL MARKETS CONFERENCE
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Firth, M., Jin, M., & Zhang, Y. (2014). Information-based stock trading and managerial incentives: Evidence from China's stock market. The European Journal of Finance, 20(7-9) : 637-656. doi: 10.1080/1351847X.2012.672441