Sun, Li; Habib, Ahsan; Huang, Hedy Jiaying
A icle
Business s a egies and ou namen incen i es: E idence
om China
BRQ Business Resea ch Qua e ly
P o ided in Coope a ion wi h:
Asociación Cien í ica de Economía y Di ección de Emp esas (ACEDE), Mad id
Sugges ed Ci a ion: Sun, Li; Habib, Ahsan; Huang, Hedy Jiaying (2024) : Business s a egies and
ou namen incen i es: E idence om China, BRQ Business Resea ch Qua e ly, ISSN 2340-9444,
Sage Publishing, London, Vol. 27, Iss. 2, pp. 144-163,
h ps://doi.o g/10.1177/23409444211022755
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/327038
S anda d-Nu zungsbedingungen:
Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen
Zwecken und zum P i a geb auch gespeiche und kopie we den.
Sie dü en die Dokumen e nich ü ö en liche ode komme zielle
Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich
machen, e eiben ode ande wei ig nu zen.
So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen
(insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en,
gel en abweichend on diesen Nu zungsbedingungen die in de do
genann en Lizenz gewäh en Nu zungs ech e.
Te ms o use:
Documen s in EconS o may be sa ed and copied o you pe sonal
and schola ly pu poses.
You a e no o copy documen s o public o comme cial pu poses, o
exhibi he documen s publicly, o make hem publicly a ailable on he
in e ne , o o dis ibu e o o he wise use he documen s in public.
I he documen s ha e been made a ailable unde an Open Con en
Licence (especially C ea i e Commons Licences), you may exe cise
u he usage igh s as speci ied in he indica ed licence.
h ps://c ea i ecommons.o g/licenses/by-nc/4.0/
h ps://doi.o g/10.1177/23409444211022755
Business Resea ch Qua e ly
2024, Vol. 27(2) 144 –163
© The Au ho (s) 2021
A icle euse guidelines:
sagepub.com/jou nals-pe missions
DOI: 10.1177/23409444211022755
jou nals.sagepub.com/home/b q
C ea i e Commons Non Comme cial CC BY-NC: This a icle is dis ibu ed unde he e ms o he C ea i e Commons
A ibu ion-NonComme cial 4.0 License (h ps://c ea i ecommons.o g/licenses/by-nc/4.0/) which pe mi s non-comme cial use,
ep oduc ion and dis ibu ion o he wo k wi hou u he pe mission p o ided he o iginal wo k is a ibu ed as speci ied on he SAGE and
Open Access page (h ps://uk.sagepub.com/abou us/openaccess.h m).
In oduc ion
This a icle in es iga es he associa ion be ween business
s a egy and i m-le el ou namen incen i es in China.
Business s a egy is an impo an ac o a ec ing he in e -
nal go e nance mechanism o i ms, including he design
o execu i e compensa ion s uc u e (Bake e al., 1988;
Miles & Snow, 1978, 2003; Po e , 1996; Va ada ajan &
Cla k, 1994). A well-designed incen i e mechanism no
only allows execu i es o unde s and he impo ance o
achie ing i m objec i es, bu also encou ages hem o
wo k ha d owa d achie ing co po a e a ge s. Resea ch
hus a has examined he ela ion be ween business s a e-
gies and chie execu i e o ice (CEO) compensa ion
s uc u es (Hoskisson e al., 1989; I ne e al., 1997;
Rajagopalan & P esco , 1990; Tosi & Gomez-Mejia,
1989), bu has emained silen on how i m-le el business
s a egy a ec s he execu i e compensa ion s uc u e, he
so-called ou namen incen i e. This is su p ising since he
uppe echelon heo y posi s ha “leade ship o a complex
o ganiza ion is a sha ed ac i i y, and he collec i e cogni-
ions, capabili ies, and in e ac ions o he en i e TMT en e
in o s a egic beha io s” (Hamb ick, 2007, p. 334). As
such, a ocus on execu i e g oups a he han indi iduals
can yield a be e explana ion o o ganiza ional ou comes
han a ocus on indi iduals (such as he CEO) alone
(Hamb ick, 2007; Hamb ick & Mason, 1984).
Tou namen incen i es acili a e a con es among senio
execu i es, and only he bes ela i e pe o me in he con-
es can ge he gene ous mone a y ewa ds as well as a
supe io posi ion in he co po a e hie a chy (Bognanno,
2001; E iksson, 1999; Lazea , 1995; Lazea & Rosen,
1981). Tou namen incen i es a e cap u ed by he pay gap
be ween he CEO and he emaining execu i es. The la ge
he pay gap, he s onge he mo i a ion o execu i es o
win he con es . We posi a posi i e ela ionship be ween
business s a egy and he adop ion o ou namen incen-
i es. Ou s udy ollows he o ganiza ional s a egy ypol-
ogy by Miles and Snow (1978, 2003), in which hey
iden i y h ee ecu ing iable business s a egies namely
p ospec o s, de ende s, and analyze s.
Business s a egies and ou namen
incen i es: E idence om China
Li Sun1, Ahsan Habib2 and Hedy Jiaying Huang2
Abs ac
We in es iga e he associa ion be ween business s a egy and i m-le el ou namen incen i es in China and ind ha
business s a egy is associa ed wi h ou namen incen i es posi i ely. We u he ind ha his posi i e ela ionship
mani es s i sel in local, bu no cen al, s a e-owned en e p ises (SOEs). In addi ion, we also o e some e idence
ha o eign ins i u ional in es o s play a mode a ing ole on he posi i e associa ion be ween business s a egy and
ou namen incen i es. Ou s udy ills a gap in he exis ing ou namen li e a u e by inco po a ing business s a egy as
an impo an de e minan o ou namen incen i es in China.
JEL CLASSIFICATION M10; G30; J33
Keywo ds
Business s a egies, China, de ende , p ospec o , ou namen incen i es
1 School o Accoun ing, Guangdong Uni e si y o Fo eign S udies,
Guangzhou, China
2School o Accoun ancy, Massey Uni e si y, Auckland, New Zealand
Co esponding au ho :
Ahsan Habib, School o Accoun ancy, Massey Uni e si y, P i a e Bag
102904, Auckland 0745, New Zealand.
Email: [email p o ec ed]
1022755BRQ0010.1177/23409444211022755Business Resea ch Qua e lySun e al.
esea ch-a icle2021
Regula Pape
Sun e al. 145
P ospec o s a emp o be inno a i e ma ke leade s by
apidly changing p oduc lines, di e si ying p oduc s, and
s imula ing and explo ing new ma ke oppo uni ies. The
apid g ow h expe ienced by p ospec o - ype i ms leads
o complexi y o ope a ions, uns able o ganiza ional s uc-
u e, and high unce ain ies and isks (Habib & Hasan,
2019; Miles & Snow, 1978, 2003) To deal wi h such com-
plexi ies, Miles and Snow (1984) sugges ha p ospec o s’
manage ial ec ui men s a egy will be o employ highly
alen ed execu i es who will ou pe o m hei pee s in he
indus y. As mo e execu i es join in, leading o a la ge
in e nal candida e pool, p ospec o - ype i ms a e likely o
enla ge he ou namen p ize o compensa e o he lowe
likelihood o p omo ion o he CEO posi ion (Holms om,
1992; Lazea & Rosen, 1981; McLaughlin, 1988). In con-
as , de ende - ype i ms ocus on p oduc ion e iciency
and cos con ol and, hence, o e less manage ial disc e-
ion by en o cing s ic guidelines on in es men app o al.
De ende s, he e o e, a e less likely o adop ou namen
incen i es o compensa e execu i es, as such i ms a e less
conce ned abou execu i es’ abili y o manage hei s a e-
gic ini ia i es. Analyze s ep esen cha ac e is ics o bo h
p ospec o s and de ende s. In line wi h p io li e a u e
(Ben ley-Goode e al., 2013; Simons, 1987), we ocus only
on p ospec o s and de ende s, each o which si a oppos-
ing spec ums o he s a egic chain.
We examine ou esea ch p oposi ion in he con ex o
China o se e al easons. Fi s , he inc ease in labo cos
and he in ensi e compe i ion globally, encou age a majo -
i y o Chinese en e p ises o ansi om a mo e cos -o i-
en ed business s a egy o a mo e di e en ia ion-o ien ed
s a egy. In ecen decades, China has gone h ough a big
boom o e-comme ce: o ins ance, he widesp ead use o
he in e ne and mobile shopping pla o ms, all o e China.
The unique ea u es o di e en ia ion s a egy, like b and
name ecogni ion, ha e become a c ucial ac o o i ms’
success in a digi al wo ld. As a esul , an inc easing num-
be o i ms end o adop he di e en ia ion s a egy (Peng
e al., 2015). How such a change in business s a egy in lu-
ences ou namen incen i es is a p essing esea ch ques-
ion. Second, se e al s udies documen he e ec o
business s a egy on equi y compensa ion in he Uni ed
S a es, whe e equi y-based compensa ion schemes domi-
na e (Y. Chen & Je mias, 2014; Na issi e al., 2017).
Unlike US execu i es, Chinese execu i es ecei e p e-
dominan ly cash-based compensa ion (J. Chen e al., 2011;
Huang & Boa eng, 2017; H. Zhang e al., 2018). The ela-
ionship be ween such cash compensa ion–based ou na-
men incen i es and business s a egies equi es empi ical
sc u iny. On one hand, compa ed wi h de ende - ype i ms,
we expec p ospec o - ype i ms o design a ou namen
s uc u e ha widens he pay gap among execu i es and
he CEO, because such cash and pe k consump ion is alu-
able. On he o he hand, wi h hal o he lis ed i ms being
s a e-owned, i is ye unclea whe he s a e owne ship
would ha e any signi ican implica ion o he design o
ou namen s uc u e in p ospec o - ype e sus de ende -
ype i ms in China.
Using a la ge sample o non- inancial Chinese lis ed
i ms in he A-sha e ma ke du ing he pe iod om 2011 o
2017, we ind ha i ms pu suing p ospec o s a egy ha e
la ge ou namen sizes compa ed wi h de ende - ype
i ms.1 In e ms o economic signi icance, he epo ed
coe icien implies ha one s anda d de ia ion inc ease in
s a egy, is associa ed wi h 11.37% inc ease in ou namen
incen i es (p oxied by na u al loga i hm o he pay gap
[LnGAP]). The main indings a e obus o al e na i e
measu es o business s a egy and ou namen incen i es.
Second, we es o he mode a ing e ec o s a e owne -
ship on he associa ion be ween business s a egy and ou -
namen incen i es, and ind he associa ion o be posi i e
and signi ican o bo h he s a e-owned en e p ises (SOEs)
and he p i a e i m (non-SOEs) sub-samples. Howe e ,
when he SOE sample is u he decomposed in o cen al
and local-SOEs, we ind he posi i e associa ion o be con-
ined o he local-SOE g oup, bu insigni ican o he cen-
al-SOE g oup. In addi ion, we p o ide some e idence
ha quali ied o eign ins i u ional in es o s (QFII) also
mode a e he ela ionship be ween business s a egy and
ou namen incen i es.
Ou s udy con ibu es o he exis ing li e a u e in se -
e al impo an aspec s. Fi s , we con ibu e o exis ing
execu i e compensa ion li e a u e by ocusing on op man-
agemen ou namen incen i es a he han CEO compen-
sa ion. Since, leade ship o an o ganiza ion is a sha ed
ac i i y, a ocus on execu i e g oups a he han indi idu-
als can p o ide iche insigh s o o ganiza ional ou comes
han a ocus on indi iduals alone (Hamb ick, 2007;
Hamb ick & Mason, 1984). Second, we ex end he scan
li e a u e on he de e minan s o ou namen incen i es by
in es iga ing he ole o i m-le el business s a egy (Sun
& Habib, 2020). To he bes o ou knowledge, no s udy
has ye explo ed he ela ionship be ween business s a -
egy and ou namen incen i es, which is a he su p ising,
gi en he dominan ole business s a egies play in shaping
co po a e decisions. Thi d, ou indings ha e policy impli-
ca ions o egula o s ega ding he app op ia e design o
manage ial compensa ion o he SOEs. Ou indings sug-
ges ha only he local SOEs’ ou namen incen i es a e
sensi i e o business s a egy, hence, “Pay Cap”2 policy
may no i o all ypes o SOE. The policy may be mo e
sui able o cen al SOEs and de ende - ype local SOEs
since hese i ms a e less inno a i e, and do no necessa -
ily need a la ge pay dispa i y o compensa e hei
execu i es.
The es o he a icle is o ganized as ollows. The li -
e a u e e iew and hypo heses de elopmen sec ion o e s
heo e ical backg ound on bo h business s a egy and ou -
namen incen i es, and de elops empi ical p edic ions.
Nex , ou esea ch design and p ocedu e a e desc ibed
(e.g., da a and sample selec ion, empi ical model, meas-
u emen s o main a iable o in e es s). We epo and
146 Business Resea ch Qua e ly 27(2)
explain he main indings in he empi ical esul s sec ion.
Finally, we conclude by e-emphasizing he key indings,
con ibu ions, and po en ial implica ions o ou s udy.
Li e a u e e iew and hypo heses
de elopmen
Resea ch on business s a egy
Business s a egy is a se o p oac i e ac ions and mo es
ha assis a i m in achie ing and sus aining a compe i i e
ad an age wi hin an indus y (Va ada ajan & Cla k, 1994).
The managemen li e a u e p o ides se e al no able busi-
ness s a egy ypologies ha po ay how a i m compe es
in i s espec i e ma ke s. Fo ins ance, Po e (1980) iden-
i ies s a egies in e ms o cos leade ship (p ice) and
p oduc di e en ia ion (quali y), while Ma ch (1991) clas-
si ies business s a egies in o ei he exploi a i e o explo -
a i e, and T eacy and Wie sema (1995) di e en ia e
be ween ope a ional excellence, p oduc leade ship, and
cus ome in imacy.
Howe e , in his s udy, we adop he business s a egy
ypology de eloped by Miles and Snow (1978, 2003).
Conside ing he di e ences in he magni ude and di ec ion
o change in a ious i ms’ p oduc s and ma ke s wi hin
he same indus y, hey ca ego ize business s a egy in o
h ee ypes: p ospec o s, analyze s, and de ende s. The use
o his ypology b ings se e al ad an ages compa ed wi h
o he s a egy ypologies men ioned abo e. Fi s , hei
s a egic ypes a e one o he mos used and well-ci ed in
con empo a y s a egy li e a u e o hei s ong and
de ailed heo e ical o ien a ion (Smi h e al., 1989).
Second, he cons uc alidi y o his ypology has been
widely sc u inized and es ed by p e ious s udies in a a i-
e y o se ings wi h success (Ben ley-Goode e al., 2013;
Higgins e al., 2015; I ne e al., 1997). Thi d, unlike o he
well-known ypologies, which a e unable o app op ia ely
iden i y i ms ha ope a e unde a mixed s a egy, he
Miles and Snow (1978, 2003) ypology could mo e clea ly
di e en ia e i ms ha ope a e a one end o he o he o a
s a egy con inuum. In addi ion, he Miles and Snow ypol-
ogy can be ope a ionalized using a chi al da a (e.g., I ne
e al., 1997), he eby, enabling us o conduc a chi al
esea ch using a la ge numbe o obse a ions. O he
ypologies, on he con a y, can be ope a ionalized only
h ough in e iews and/o ques ionnai e su eys.
P ospec o s (inno a ion-o ien ed s a egy) ha e a e y
b oad p oduc domain and concen a e on seeking new
p oduc s and iden i ying po en ial ma ke oppo uni ies,
which equi e hem o make subs an ial in es men s in
esea ch and de elopmen (R&D) and ma ke ing ac i i-
ies. To espond quickly o changes in ma ke s condi ions,
p ospec o s end o main ain a mo e lexible o ganiza ional
s uc u e and o o e g ea e manage ial disc e ion o
coping wi h unce ain ies and isks. Unlike p ospec o s,
de ende s emphasize cos e iciency and ce ain y as he
basis o business con es /compe i ion. They conside
mainly how o ob ain a compe i i e ad an age on hei
limi ed p oduc s, se ice, and quan i y h ough mo e e i-
cien p oduc ion and dis ibu ion in a single ma ke .
The e o e, de ende s end o main ain a na ow p oduc
domain and a mo e s able and cen alized o ganiza ional
s uc u e o con ol ope a ing cos s (Miles & Snow, 1978;
Thomas & Ramaswamy, 1996). Howe e , such a s a egy
p e en s hem om adap ing well o unce ain y and isk.
Analyze s, he emaining s a egy g oup, exhibi cha ac-
e is ics o bo h p ospec o s and de ende s.
Se e al s udies ha e shown he e ec s o business s a -
egies on i m ou comes and manage ial beha io .
Compa ed o de ende s, p ospec o s a e mo e likely o
engage in inancial epo ing i egula i ies (Ben ley-Goode
e al., 2013), expe ience weake in e nal con ol (Ben ley-
Goode e al., 2017), adop mo e agg essi e ax a oidance
s a egies (Higgins e al., 2015), ha e a high p obabili y o
ecei ing a going conce n opinion (Lim e al., 2018), p o-
ide less eadable annual epo s (Chen, Eshleman e al.,
2017; Habib & Hasan, 2020), exhibi ine icien in es -
men s (Habib & Hasan, 2019; Na issi e al., 2017), make
mo e p o i able inside ading (G. Z. Chen & Keung,
2019). On he con a y, Ben ley-Goode e al. (2019) ind
ha p ospec o s exhibi lowe in o ma ion asymme ies
han de ende s, as p ospec o s end o ha e g ea e analys
and p ess co e age, and mo e equen olun a y disclo-
su es. Following he same ein, Yuan e al. (2018) ind ha
p ospec o s p oduce a be e co po a e social esponsibil-
i y (CSR) pe o mance han de ende s.
In e ms o execu i e compensa ion, Veliya h e al.
(1994) ind ha p ospec o s pay hei op execu i e eam
mo e han hei de ende o analyze coun e pa s, since
he execu i es o p ospec o - ype i ms ace mo e employ-
men isks, as p oxied by he annual a iance o qua e ly
sales. Using high- echnology indus ies, Yanado i and
Ma le (2006) ind ha p ospec o s end o pay highe sal-
a ies o hei R&D employees. Y. Chen and Je mias
(2014) ind ha p oduc di e en ia ion i ms use a highe
p opo ion o pe o mance-based compensa ion (bonus,
s ock op ions, and o he annual compensa ion) o hei
manage s, han do cos -leade ship i ms. Sheng e al.
(2019) documen a nega i e ela ion be ween business
s a egy and employee wage p emia in China. Howe e ,
how business s a egy in luences on ano he ype o incen-
i e plan, namely, ou namen incen i es (p omo ion-based
compensa ion) ecei ed a less a en ion.
Resea ch on ou namen incen i es
Explici compensa ion (e.g., CEO pay) con inues o be one
o he mos con o e sial issues in he co po a e go e nance
domain (Mu phy, 2013). This ield o s udies is domina ed
by agency heo y, which posi s ha a well-designed CEO
compensa ion package can help i ms o educe manage ial
oppo unism by encou aging manage s o be e align hei
Sun e al. 147
in e es s wi h hose o he company’s sha eholde s (Jensen
& Meckling, 1976). Despi e i s popula i y, he empi ical
e idence o explici CEO compensa ion emains inconsis -
en . Se e al s udies show ha a p ope ly designed compen-
sa ion sys em inc eases i m pe o mance (Agga wal &
Samwick, 2006; Conyon & He, 2011; Ka o & Long, 2006;
Tang & Sun, 2014). Howe e , o he s ind ha such compen-
sa ion plans may exace ba e he agency p oblem by encou -
aging manage ial en -seeking (Be and & Mullaina han,
2001; Ye mack, 1997). One o he possible easons is ha
powe ul CEOs can exe signi ican in luence in se ing
hei own pay (Bebchuk & F ied, 2003). Mo eo e , gi en
ha many un o eseen con ingencies canno be con ac ed
ex-an e, execu i es may shi k esponsibili ies, especially
when moni o ing is less han pe ec (Lazea & Rosen,
1981). Owing o hese sho comings associa ed wi h he
explici o ms o compensa ion schemes, he ou namen
incen i e, an al e na i e o m o execu i e compensa ion,
has gained popula i y (e.g., A end, 2019).
Tou namen heo y was o iginally de eloped by Lazea
and Rosen (1981) and hen ex ended by Rosen (1986). The
heo y s a es ha ou namen incen i es acili a e a con es
among senio execu i es, and he winne o he con es can
ge highe emune a ion and supe io s a us in he co po-
a e hie a chy, while he emaining compe i o s “lose” he
ou namen and ecei e no hing (Bognanno, 2001;
E iksson, 1999; Fa a elli e al., 2015; Lazea & Rosen,
1981). Tou namen incen i es, p oxied by he pay gap
be ween CEO and senio execu i es, se e o encou age
senio execu i es o wo k ha d o achie e he p ize o he
CEO posi ion. Unlike explici compensa ion plans whe e
ce ain goals a e speci ied be o ehand, unde ou namen
schemes execu i e pe o mance is o en e alua ed by
compa ing how well one does agains he o he compe ing
execu i es. Thus, ou namen incen i es a e an e icien
incen i e mechanism o elici e o when manage ial pe -
o mance is di icul o obse e, especially when in o ma-
ion asymme y is se e e, and he en i onmen is unce ain
(Bloom & Michel, 2002).
To da e, a numbe o s udies p o ide suppo ing e i-
dence ha ou namen incen i es enable he company o
e ain high-pe o ming manage s wi h app op ia e human
capi al, and p oduce be e i m pe o mance (e.g., J. Chen
e al., 2011; Coles e al., 2018; E iksson, 1999; Hu e al.,
2013; Kale e al., 2009; Lee e al., 2008; B. X. Lin & Lu,
2009; Y. Xu e al., 2016). The exis ence o ou namen
incen i es is also ound o educe manage ial ea nings
manipula ion beha io (Z. Chen e al., 2016; H. Zhang
e al., 2018); enhance inno a ion e iciency (Shen &
Zhang, 2018; M. Xu e al., 2017); and educe he occu -
ence o p ice c ash (Chen, Kim e al., 2017). Howe e ,
p io li e a u e also documen s e idence o oppo unis ic
beha io s emming om ou namen incen i es. Fo
example, p io s udies ha e ound ha ou namen incen-
i es induce mo e sabo age ac i i ies (Ha b ing &
I lenbusch, 2011), mo e agg essi e ax s a egies (Kubick
& Masli, 2016), and esul in highe audi ees owing o
inc eased le els o audi isk (B yan & Mason, 2017).
Al hough s udies on he consequences o ou namen
incen i es a e plen i ul, we ound only a ew p io s udies
ha sough o unde s and he de e minan s o ou namen
incen i es. Some such de e minan s include i ms’ g ow h
pa e ns (Sahib e al., 2018); i ms’ CEO cha ac e is ics,
such as o e con idence (Vi ano a, 2018), and cul u al al-
ues, such as powe dis ance and pay equi y (Bu ns e al.,
2017).
Business s a egy and ou namen
incen i es
As men ioned be o e, p ospec o - ype i ms ha ocus on
seeking new g ow h oppo uni ies and apid changes in
p oduc ma ke s, ope a e businesses unde an in ensi ely
compe i i e en i onmen as compa ed wi h de ende - ype
i ms (Miles & Snow, 1978, 2003). Such challenges
encou age hem o expand hei op managemen eam.
Miles and Snow (1984) also sugges ha p ospec o s’
manage ial ec ui men s a egy will be o employ highly
alen ed execu i es who will ou pe o m hei pee s in he
indus y. This may lead o a la ge in e nal candida e pool,
who will compe e o CEO p omo ion. When mo e com-
pe i o s join in, he e is a lowe p obabili y o ge ing CEO
p omo ion and a smalle winning p ize. Tou namen he-
o y sugges s ha a la ge ou namen p ize is needed o
compensa e he lowe likelihood o p omo ion o indi-
idual execu i es (Holms om, 1992; Lazea & Rosen,
1981; McLaughlin, 1988). Ka o and Long (2011) ind ha
i ms end o enla ge hei ou namen p ize along wi h a
la ge candida e pool o he CEO p omo ion in China o
p e en lowe le el o e o s om each candida e.
Mo eo e , he manage ial le el o e o ends o
inc ease wi h he p ize sp ead be ween he winne and he
lose (Knoebe & Thu man, 1994). To ensu e execu i es
con inue exe ing high le els o e o , i ms should enla ge
hei pay gap o compensa e o his e ec . Also, he e is an
inc easing numbe o Chinese lis ed i ms ha end o
adop he p ospec o - ype s a egy in he new e a o e-com-
me ce wi h he booming online sales ia mobile shopping
pla o ms in China. This is because inno a i e business
s a egy has become a i al ac o o i m’s long- e m suc-
cess in a digi al wo ld (Peng e al., 2015). Ve y o en, he
apid g ow h expe ienced by p ospec o s inc eases ma ke
unce ain y s emming om complexi y and isky business
ope a ions (Ben ley-Goode e al., 2013; Habib & Hasan,
2019). To deal wi h such complexi y e icien ly, inno a-
i e i ms migh pu sue highe ou namen incen i es,
since p omo ion-based ou namen s help o a ac and
e ain manage s owing o he in ense compe i ion among
po en ial candida es (Bloom & Michel, 2002; Lazea ,
1995). The e o e, d awing on ou namen heo y, i is p e-
dic ed ha p ospec o - ype Chinese lis ed i ms end o
ha e la ge ou namen incen i es.
148 Business Resea ch Qua e ly 27(2)
In con as , de ende - ype Chinese lis ed i ms ocus
on p oduc ion and dis ibu ion e iciency in a na owly
de ined and s able p oduc se , ins ead o adjus ing hei
p oduc -ma ke po olios equen ly. The e o e, hey a e
less conce ned abou hei execu i es’ abili y o manage
i m s a egic ini ia i es. They o en ha e s ic policies
and p ocedu es in hei business ope a ion (Na issi e al.,
2017) ha discou age execu i es om unde aking isky
p ojec s. Ben ley-Goode e al. (2013) also documen ha
de ende - ype i ms expe ience lowe business isks.
Mo eo e , since hey acqui e g ow h po en ial om a
compe i i e ad an age on hei exis ing ange o p oduc s
and se ices, hey a e less likely o expe ience ine icien
labo in es men and ma ke unce ain y (Habib & Hasan,
2019; Singh & Aga wal, 2002). The e o e, execu i es in
de ende - ype i ms in China do no ace he same le el
o challenges as do hei coun e pa s in he p ospec o -
ype i ms. They do no necessa ily hi e execu i es ex e -
nally no expand he op managemen eam, as he e is
li le demand o s a egy-o ien ed execu i es in de ende -
ype i ms. In con as wi h p ospec o - ype i ms,
de ende s in China a e less likely o adop ou namen
incen i es o compensa e hei execu i es, i.e., he pay
dispa i y among execu i es ends o be ela i ely small
o de ende i ms. Hence, ou namen heo y p edic s
ha de ende - ype Chinese lis ed i ms a e mo e likely o
ha e smalle ou namen incen i es as compa ed wi h
p ospec o - ype i ms. We, he e o e, de elop he ollow-
ing hypo hesis:
Hypo hesis 1. Business s a egy has a posi i e ela ion
wi h ou namen incen i es in China: i ms ollowing a
p ospec o - ype s a egy demons a e s onge ou na-
men incen i es han hose ollowing a de ende - ype
s a egy.
Business s a egy and ou namen
incen i es: he mode a ing e ec s o
owne ship
In he Chinese s ock ma ke , a la ge p opo ion o lis ed
companies a e SOEs (J. Chen e al., 2011; Hass e al.,
2016; Ka o & Long, 2011). The s ong go e nmen in lu-
ence in China has impo an implica ions o i ms in o -
mula ing hei business s a egies (H. Li & Zhou, 2005;
Rueke & Walke , 1987) which, in u n, may ha e signi i-
can implica ions o ou namen incen i es. Unlike execu-
i es in non-SOEs, execu i es in SOEs ha e no only
economic mo i a ion, bu also poli ical mo i a ion. They
could enjoy ex ensi e pe ks h ough poli ical p omo ion
ha a e no a ailable o hei coun e pa s (H. Zhang e al.,
2018). The highe he poli ical posi ion, he la ge he
pe ks hey can consume. Hence, hey a e mo i a ed o pu -
sue poli ical p omo ion a he han in e nal co po a e
p omo ion.
Fu he mo e, Chinese SOEs no mally ecei e subs an-
ial inancial suppo om he s a e, o example, go e n-
men loans, educed axes, and go e nmen subsidies,
enabling hem o a oid po en ial bank up cy (Sheng e al.,
2019; Tao e al., 2017). Because o he a o emen ioned
“gua an ee” om he s a e in China and he lack o in e es
o Chinese SOE execu i es in pu suing highe cash com-
pensa ion, s a e owne ship could po en ially weaken he
posi i e associa ion be ween business s a egy and ou na-
men incen i es in China. We, he e o e, de elop he ol-
lowing hypo hesis.
Hypo hesis 2a. The posi i e ela ion be ween business
s a egy and ou namen incen i es is weake in SOEs
han in non-SOEs in China.
S a e owne ship in China can be u he classi ied in o
“cen al SOEs,” con olled by he cen al go e nmen ,
and “local SOEs,” con olled by he local go e nmen .3
In ecen decades, he majo e o ms o SOEs4 in China
ha e enabled such i ms o be e in eg a e in o he ma -
ke economy sys em, and o imp o e hei co po a e
e ec i eness and e iciency cons an ly o espond o
in ensi e compe i ion om p i a e companies and mul i-
na ional companies. Howe e , p e ious e idence shows
ha local, bu no cen al, SOEs pu sue a di e si ica ion
s a egy in China (Y. Zhang & Li, 2006), because local
go e nmen s in China a e keen o p omo e egional g oss
domes ic p oduc (GDP) h ough enhancing p oduc ion,
ou pu , and employmen : ou comes o business
di e si ica ion.
As local SOEs in China ha e a s onge ma ke o ien a-
ion and manage ial au onomy, hey ha e been p omp ed
by ma ke libe aliza ion o deploy mo e agg essi e and
inno a i e business s a egies a ge ed a hei business
p io i ies (M. H. Li e al., 2018). To implemen such busi-
ness s a egies, mo e capable execu i es a e demanded in
local SOEs, he eby inc easing he compensa ion gap o
he enla ged candida e pool. Howe e , he ex en o s a e
con ol o e cen al SOEs’ business s a egies is likely o
be s onge , compa ed wi h hei coun e pa s in local
SOEs. To sus ain mac o-le el g ow h and na ional indus-
ial policies, cen al SOEs in China comply wi h mo e
es ic i e in es men app o al p ocedu es and close
sc u iny o hei di e si ica ion ini ia i es (M. H. Li e al.,
2018). Gi en ha he e a e signi ican di e ences in e ms
o Chinese go e nmen in e en ion be ween cen al- and
local-le el SOEs, we p edic ha wi hin SOEs, local SOEs
wi h mo e di e si ied s a egies will ha e la ge ou na-
men sizes han hose in cen al SOEs. We, he e o e,
de elop he ollowing hypo hesis:
Hypo hesis 2b. The posi i e ela ion be ween business
s a egy and ou namen incen i es is mo e p onounced
o local SOEs han o cen al SOEs in China.
Sun e al. 149
To be e in eg a e in o he global compe i i e en i on-
men and o u he in e na ionalize he local inancial
ma ke , he Chinese au ho i ies launched he QFII p og am
in 2002. QFII a e o eign ins i u ional in es o s who ake a
long- e m, s a egic in es men app oach in Chinese
s ocks. QFII include many o he wo ld’s la ges asse
manage s, cen al banks, so e eign weal h unds, supe an-
nua ion unds, and uni e si y endowmen s. Thei ole ance
o isk on long- e m in es men is ela i ely highe han
ha o domes ic in es o s in China. This is because hese
o eign ins i u ional in es o s can be e di e si y isks
h ough hei in e na ional po olios. Mo eo e , unlike
domes ic in es o s, hey a e less oubled by connec ions
wi h co po a e inside s, he eby lowe ing he isk o mana-
ge ial en enchmen and os e ing alue-inc easing in es -
men s (Bena e al., 2017; N.Y. Liu e al., 2014).
Consis en ly, exis ing li e a u e p o ides empi ical e i-
dence ha o eign ins i u ional in es o s encou age man-
age s o ocus mo e on long- e m in es men in inno a ion,
human capi al, in e na ionaliza ion o a i m’s ope a ions,
and i m alua ion (Bena e al., 2017; Luong e al., 2014).
As p e iously discussed, Chinese lis ed i ms ha pu sue
p ospec o -o ien ed s a egies ealize g ow h in i m alue
mainly h ough opening up new ma ke s and iden i ying
po en ial ma ke oppo uni ies ha equi e hem o in es
subs an ially in R&D and ma ke ing ac i i ies. The e o e,
he p esence o o eign owne ship in Chinese lis ed com-
panies can be e se e p ospec o s’ s a egic goals. Qiao
and Li (2019) also documen ha he in e play be ween
o eign ins i u ional in es o s and hei long- e m in es -
men philosophies posi i ely impac i m inno a ion in
China. Following his logic, we expec p ospec o - ype
i ms wi h QFII (i.e., o eign owne ship) o be mo e will-
ing o inc ease he sizes o ou namen s enabling hem o
a ac mo e alen ed execu i es o implemen ing com-
plex and inno a i e s a egies. We, he e o e, de elop he
ollowing hypo hesis.
Hypo hesis 2c. The posi i e ela ion be ween business
s a egy and ou namen incen i es is mo e p onounced
in Chinese lis ed i ms wi h QFII han hose wi hou
QFII.
Resea ch design
Da a and sample
We collec ed da a om he China S ock Ma ke and
Accoun ing Resea ch (CSMAR) da abase, o cons uc ou
independen a iable (business s a egy), dependen a i-
able ( ou namen incen i es), and con ol a iables. We
es ablish an unbalanced panel da ase o 5,705 i m-yea
obse a ions wi h 1,765 unique i ms in he Chinese
A-sha e s ock ma ke (bo h Shanghai and Shenzhen S ock
Exchange) o he pe iod spanning 2011–2017 wi h
non-missing business s a egy, ou namen incen i es, and
all he con ols. The sample pe iod s a s om 2011
because one o he mos impo an da ase s needed o
compu ing he s a egy sco es, R&D expenses, became
a ailable only om 2007 in he CSMAR da abase, and we
equi e 5-yea da a o indi idual componen s o calcula e
s a egy sco es (explained below).
Measu emen o business s a egy
We employed he business s a egy measu emen de el-
oped by Ben ley-Goode e al. (2013). They ollow he
heo e ical no ions o s a egy ypologies p oposed by
Miles and Snow (1978, 2003) bu use accoun ing in o ma-
ion o c ea e a composi e s a egy sco e. This measu e has
been ex ensi ely used in con empo a y empi ical s a egy
li e a u e (Ben ley-Goode e al., 2013, 2017, 2019; Chen,
Eshleman e al., 2017; G. Z. Chen & Keung, 2019; Habib
& Hasan, 2017, 2019, 2020; Higgins e al., 2015; Sheng
e al., 2019).
The main a iable o in e es is STRATEGY. We ollow
p io li e a u e (e.g., Ben ley-Goode e al., 2013; Chen,
Eshleman e al., 2017; G. Z. Chen & Keung, 2019; Higgins
e al., 2015; I ne e al., 1997; Sheng e al., 2019) and com-
pu e s a egy sco e by using he ollowing six fi m cha ac-
e is ics: (1) he a io o R&D expense o o al sales (measu e
o a i m’s p opensi y o seek new p oduc s); (2) he a io o
employees o sales ( i m’s abili y o p oduce and dis ibu e
i s goods and se ices e icien ly); (3) a measu e o employee
luc ua ions (s anda d de ia ion o o al employees); (4) he
1-yea sales g ow h a e (p oxy o a i m’s his o ical
g ow h); (5) he a io o ma ke ing (selling, gene al, and
adminis a i e expenses) o sales (a p oxy o i ms’ empha-
sis on ma ke ing and sales); and (6) a measu e o capi al
in ensi y (ne p ope y, plan , and equipmen scaled by o al
asse s; designed o cap u e a i ms’ ocus on p oduc ion).
Consis en wi h p e ious li e a u e (Ben ley-Goode
e al., 2013), all a iables a e compu ed using a olling
a e age o e 5 yea s (including he cu en yea ). We hen
ank each a iable wi hin each indus y-yea .5 Wi hin each
i m-yea , hose obse a ions wi h a iables in he highes
quin ile a e assigned a sco e o 5, while hose in he lowes
quin ile a e assigned a sco e o 1 (excep capi al in ensi y,
which is e e se-sco ed so ha obse a ions in he lowes
(highes ) quin ile a e gi en a sco e o 5 (1). Then o each
fi m-yea , we add up he sco es o each o he six a ia-
bles o ge he o al composi e sco e. The highes possible
sco e ha a company could ecei e is 30 (p ospec o - ype)
and he lowes possible sco e is 6 (de ende - ype).
This con inuous measu e is ou p ima y STRATEGY
a iable. Howe e , his con inuous a iable does no ca e-
go ize i ms in o h ee dis inc s a egy g oups bu , ins ead,
only sugges s ha a highe (lowe ) sco e ep esen s p os-
pec o (de ende )- ype i ms. Following Ben ley-Goode
e al. (2013) and o he esea ch using hei s a egy
150 Business Resea ch Qua e ly 27(2)
classi ica ion, we c ea e h ee sepa a e g oups namely,
PROSPECT (a dummy a iable, coded 1 i s a egy
sco e ⩾ 24, and 0 o he wise); DEFEND (a dummy a ia-
ble, coded 1 i s a egy sco e ⩽ 12, and 0 o he wise), and
ANALYZE (a dummy a iable, coded 1 i s a egy
sco e ⩾ 13 and ⩽ 23, and 0 o he wise). We use analyze as
he benchma k g oup, because p ospec and de end i ms
si a opposi e ends o he s a egy spec um. Re e o
Appendix 1 o addi ional de ails o he key ea u es o
each s a egic ype.
Measu emen o ou namen incen i es
In his s udy, we employ LnGAP and LnVPSTD as he
main p oxies o ou namen incen i es. Tou namen
incen i es a e usually cap u ed by he pay di e ence
be ween he CEO and emaining execu i es (Kini &
Williams, 2012; Lazea & Rosen, 1981; Pa k, 2017).
Howe e , in China, publicly lis ed i ms a e manda o ily
equi ed o p o ide only he (1) o al sala y paid o he
h ee highes paid execu i es and (2) he o al sala y paid
o all execu i es (Conyon & He, 2011; B. X. Lin & Lu,
2009). The op execu i e eam includes he P esiden ,
Vice P esiden s, Sec e a y o he Boa d, and o he senio
execu i es, as epo ed in he annual epo s, excluding
independen di ec o s and supe iso y boa d membe s
(CSMAR). We ind ha app oxima ely 67% o he sample
i m-yea obse a ions did no epo CEO compensa ion
(ei he he CEO’s name o da a ela ed o CEO compensa-
ion we e missing). We, he e o e, ollow p e ious
Chinese s udies (Liao e al., 2009; B. X. Lin & Lu, 2009;
Sun e al., 2019; H. Zhang e al., 2018), and use he na u-
al loga i hm o he a e age pay gap be ween he op h ee
execu i es and he emaining execu i es (LnGAP) o
p oxy o ou namen incen i es. Besides, we also use
LnVPSTD, de ined as he na u al loga i hm o he s and-
a d de ia ion o he pay dispa i y be ween he o al pay-
men o op execu i es and he CEO, as an al e na i e
p oxy o ou namen incen i es (Sun e al., 2019; H.
Zhang e al., 2018).
Empi ical model
To in es iga e he impac o business s a egy on ou na-
men incen i es, we use he eg ession models as shown
below
LnGAPSTRATEGYSIZELEV MTBSG
i i i i i ,,,, ,
=+ ++++αβ ββββ
01 2345
RROW
ROEDUALAGE CEOHOLDTENURE
i
i i i i
,
,,,,
++ ++ +ββ ββ β
67 89 10 ii
i i i
i
CEOBRD BSIZEBIND
MOWN LnG
,
,,,
,
+++
++
βββ
ββ
11 12 13
14 15 DDP SOEYea Indus y
i i i i i ,,
,,
,
++
++
ββ
βε
16 17 18
(1)
Ou a iable o p ima y in e es is STRATEGY. A posi-
i e and a signi ican coe icien on STRATEGY would
suppo H1. We include a se ies o con ol a iables ol-
lowing p io li e a u e on he de e minan s o ou namen
incen i es (Bu ns e al., 2017; Kale e al., 2009). To con-
ol o i m-le el undamen al ac o s, we include SIZE,
calcula ed as he na u al log o a i m’s o al asse s. In line
wi h p io s udies, we expec SIZE o be posi i ely ela ed
o ou namen incen i es since execu i e pay le el
inc eases wi h i m size (Bu ns e al., 2017; Kale e al.,
2009; Mu phy, 1999). LEV is o al liabili y di ided by o al
asse s and is expec ed o be associa ed wi h ou namen
incen i es nega i ely (He & Fang, 2016; Jiang e al., 2019;
Sun e al., 2019). MTB is he ma ke alue o sha eholde ’s
equi y di ided by he book alue o sha eholde ’s equi y.
Sun e al. (2019) ind ha MTB is co ela ed wi h ou na-
men incen i es nega i ely, while Jia (2018) show he
opposi e esul . SGROW is de ined as pe cen age change
in sales om he p io yea o he cu en yea . Gi en he
lack o p io e idence on any expec ed associa ion be ween
SGROW and ou namen incen i es, we do no make any
di ec ional p edic ion. ROE is calcula ed by di iding ne
income by sha eholde s’ equi y. We expec ROE o be
ela ed o ou namen incen i es posi i ely as e idenced in
p e ious s udies (Bu ns e al., 2017; He & Fang, 2016;
Kale e al., 2009; B. X. Lin & Lu, 2009).
To isola e he possible con ounding e ec o CEO
powe on pay dispa i y, ou model also includes DUAL (a
dummy a iable coded 1 i he CEO is also he chai man o
he boa d, and ze o o he wise), AGE (CEO’s age),
CEOHOLD ( he na u al loga i hm o numbe o sha es
held by he CEO wi hin he i m), TENURE ( he na u al
loga i hm o he numbe o mon hs ha he CEO has been
wi h he i m) and CEOBRD (a dummy a iable ha equals
1 i he CEO si s on he co po a e boa d, and 0 o he wise),
which a e commonly used as p oxies o deno e CEO
powe . Equa ion (1) u he con ols o he i m-le el co -
po a e go e nance a iables, including BSIZE ( he na u al
loga i hm o he numbe o di ec o s on he boa d), BIND
( he a io o he numbe o independen di ec o s o e he
o al numbe o di ec o s on he boa d), and MOWN ( he
pe cen age o ou s anding sha es owned by a i m’s execu-
i e). We also include a con ol o he e ec o egional
GDP (LnGDP) on i ms’ execu i e compensa ion and go -
e nmen owne ship, ha is, SOE (a dummy a iable coded
1 i he i m is a S a e-Owned En e p ise [SOE], and 0 o h-
e wise). A lis o de ini ions o all a iables is p o ided in
Appendix 1. We also include indus y and yea dummies o
Sun e al. 151
con ol o indus y and yea ixed e ec s, espec i ely. To
alle ia e conce ns abou po en ial c oss-sec ional and
ime-se ies dependence in he da a, we compu e - alues
based on obus s anda d e o s clus e ed by i m.
Empi ical esul s
Desc ip i e s a is ics and uni a ia e esul s
Table 1 exhibi s he sample dis ibu ion ac oss indus ies.
Indus ies a e ca ego ized acco ding o he Guidance on
he Indus y Ca ego y o Lis ed Companies issued by he
China Secu i ies Regula o y Commission (CSRC) in
2012. The op h ee indus ies a e manu ac u ing
(77.63%), ollowed by cons uc ion (2.50%), and whole-
sale and e ail (2.48%). The indus y composi ion o he
sample i ms is simila o ha o all lis ed i ms in he wo
Chinese s ock exchanges ha a e domina ed by he manu-
ac u ing sec o .
Panel A o Table 2 summa izes desc ip i e s a is ics o
he eg ession a iables. We winso ize he con inuous a -
iables a he 1% and 99% le els o educe he possible
impac o ou lie s. As shown in Table 2, Panel A, he mean
(median) alue o ou independen a iable STRATEGY is
17.61 (18.00). Abou 8.12% o he i m-yea s a e p ospec-
o i ms (PROSPECT) and 12.32% a e de ende i ms
(DEFEND). The mean (median) alue o LnGAP is 12.11
(12.15), wi h an in e qua ile ange o 11.50 o 12.74,
which is close o ha ound by Sun e al. (2019). The al e -
na i e ou namen incen i es a iable, LnVPSTD has a
mean (median) alue o 11.66 (11.71), wi h an in e qua -
ile ange o 11.06 o 12.29. In gene al, he dis ibu ions o
hese con ol a iables a e simila o he s a is ics docu-
men ed in p e ious s udies (G. Z. Chen & Keung, 2019;
Sun e al., 2019; H. Zhang e al., 2018).
Fo i m-le el con ols, he a e age i m size (SIZE) in
ou sample is 22.36, wi h a mean le e age (LEV) a io o
.44, a ma ke - o-book (MTB) a io o 3.30, an a e age
SGROW o 19%, and an a e age e u n on equi y (ROE) o
5%. The mean alues o he abo e basic con ol a iables
a e simila o hose ound in p e ious s udies (He & Fang,
2016; Y. Liu e al., 2015; Sun e al., 2019; H. Zhang e al.,
2018). Abou 24% o he CEOs chai he boa d (DUAL),
and an a e age CEO is 49 yea s old (AGE). CEOs, on a e -
age, hold abou 25 million sha es in he company
(CEOHOLD), and ha e an a e age enu e o 42.6 mon hs
(TENURE). App oxima ely 91% o CEOs si on co po a e
boa ds (CEOBRD). Panel A o Table 2 also indica es ha
an a e age boa d consis s o 9 membe s (BSIZE), and 33%
o boa d membe s a e independen di ec o s (BIND).
Besides, he op managemen eam on a e age owns 73
million sha es (MOWN) wi hin he i m. The egional GDP
da a show he a e age GDP ac oss all egions in China is
US$570 billion (LnGDP). Abou 40.5% o i m-yea
obse a ions a e SOEs (SOE).
Panel B o Table 2 also epo s he uni a ia e es o di -
e ences in mean alues o he eg ession a iables o
i ms pu suing di e en business s a egies. I indica es
ha he mean LnGAP is 12.52 o he p ospec o g oup
compa ed o 11.86 o he de ende g oup. The di e ence
is s a is ically signi ican ( -s a is ic 11.37, p < .01). Also,
compa ed o he DEFEND g oup (M = 11.86), he
ANALYZE g oup (M = 12.11) has signi ican ly high ou na-
men size. These indings suppo he heo e ical a gumen
ha i ms pu suing he p ospec o - ype (de ende - ype)
business s a egy a e associa ed wi h high (low) ou na-
men size. Panel B o Table 2 also shows ha compa ed o
he DEFEND/ANALYZE g oup, he PROSPECT i ms
ha e signi ican ly lowe le e age and mo e g ow h oppo -
uni ies; hey a e loca ed in mo e de eloped egions and
a e less con olled by go e nmen . P ospec - ype i ms
also show high alues o DUAL, CEOHOLD, TENURE,
and CEOBRD. These s a is ics clea ly show he impo -
ance o con olling hese ac o s in ou eg ession model.
Table 1. Indus y dis ibu ion.
Indus y N%
A Ag icul u e, o es y, animal husband y, and ishe y 63 1.10
B Mining 126 2.20
C Manu ac u ing 4,441 77.63
D Indus ies o elec ic powe , hea , gas, and wa e p oduc ion and supply 83 1.45
E Cons uc ion 143 2.50
F Wholesale and e ail 142 2.48
G T anspo , s o age, and pos al se ice 54 0.94
I In o ma ion ansmission, so wa e, and in o ma ion echnology se ices 408 7.13
K Real es a e 56 0.98
L Leasing and comme cial se ices 44 0.77
M Scien i ic esea ch and echnical se ices 42 0.73
N Wa e conse ancy, en i onmen , and public acili y managemen 34 0.59
R Cul u e, spo s, and en e ainmen 34 0.59
S Di e si ied indus ies 35 0.61
To al 5,705 100
158 Business Resea ch Qua e ly 27(2)
Panel B: OLS model
1 2 3 4 5 6
NN Radius Ke nel NN Radius Ke nel
LnGAP LnGAP LnGAP LnVPSTD LnVPSTD LnVPSTD
LnGDP .212***
[4.15]
.174***
[8.99]
.174***
[9.02]
.198***
[3.39]
.177***
[8.55]
.177***
[8.55]
SOE −.421***
[−4.39]
−.454***
[−14.54]
−.455***
[−14.56]
−.298***
[−2.99]
−.348***
[−10.71]
−.349***
[−10.76]
Indus y YES YES YES YES YES YES
Yea YES YES YES YES YES YES
Cons an 1.194
[.81]
2.667***
[6.07]
2.661***
[6.07]
1.716
[1.14]
2.205***
[4.80]
2.202***
[4.81]
Obse a ions 910 5696 5,704 860 5,404 5,413
Adjus ed R2.22 .21 .21 .19 .17 .17
LOLS: o dina y leas squa es. See Appendix I. o a iable de ini ions.
In Panel A o Table 6, we use common calipe (.01).[ This able epo s p opensi y sco e ma ching analysis (PSM) eg ession esul s ela ing business
s a egy o ou namen incen i es and con ol a iables. Con inuous a iables a e winso ized a hei 1s and 99 h pe cen iles. Robus -s a is ics
a e in b acke s.
***,**, and * ep esen s a is ical signi icance a he 1%, 5%, and 10% le els, espec i ely. All a iables a e de ined in Appendix 1.
Table 6. (Con inued)
Ou s udy con ibu es o exis ing li e a u e in se e al
impo an aspec s. Fi s , we ex end he scan li e a u e on
he de e minan s o ou namen incen i es by explo ing
he ole o i m-le el business s a egy. Al hough a ple h-
o a o esea ch has examined he consequences o ou na-
men incen i es, li le a en ion has been paid o answe ing
he undamen al ques ion as o why ou namen incen i es
exis . We examine business s a egy, a hi he o unexplo ed
de e minan o ou namen incen i es. Second, ou
esea ch also ex ends he business s a egy and execu i e
compensa ion li e a u e. Al hough p e ious s udies docu-
men ha business s a egies a ec CEO compensa ion,
whe he business s a egy has any in luence o e ou na-
men incen i es has emained unanswe ed. Ou s udy,
hus, sheds new ligh on deba es su ounding op imum
compensa ion plans o i ms. Thi d, ex ensi e ou na-
men -based s udies ha e been conduc ed in he de eloped
coun ies (mainly in he Uni ed S a es). Ou s udy makes
an inc emen al con ibu ion o he exis ing ou namen li -
e a u e by p o iding new e idence on he impo ance o
business s a egies in de e mining cash-based ou namen
incen i es in an eme ging ma ke , China. Fou h, ou
esea ch en iches he business s a egy– ou namen incen-
i es ela ionship by documen ing he impo an ole ha
ins i u ional di e ences, including owne ship s uc u e
and he cash-based compensa ion en i onmen play.
The indings on s a e owne ship ha e impo an policy
implica ions. O e he pas wo decades, op execu i es in
he lis ed SOEs ha e been c i icized o ecei ing e y
gene ous pay packages despi e he poo pe o mance o
hei i ms (H. Zhang e al., 2018). To mi iga e his
conce n, he s a e-owned Asse s Supe ision and
Adminis a ion Commission (SASAC) launched a “pay
cap” policy. The aim o his policy is o na ow he com-
pensa ion di e ences be ween he a e age compensa ion
o execu i es and he a e age sala y o he employees o
SOEs om a a io o 12:1 o a a io o 7:1 o 8:1 (S a e
Council, 2014). Howe e , he e idence o his s udy sug-
ges s ha pay dispa i y o p ospec o - ype local SOEs is
sensi i e o business s a egies. SOEs ha ocus on seek-
ing new ma ke s and di e si ying p oduc s ha e o o e
ela i ely highe compensa ion o hei execu i es, p e e -
ably h ough well-designed ou namen schemes.
The e o e, he “Pay Cap” policy may be mo e app op ia e
o cen al SOEs, and de ende - ype local SOEs ha ace
ewe unce ain ies and lowe isks.
One o he limi a ions o his s udy is ou use o cash
compensa ion alone o measu e ou namen incen i es.
Ideally, ou namen incen i es should be measu ed using
bo h cash and equi y compensa ion. Howe e , equi y-based
compensa ion schemes a e s ill in hei in ancy in China.
The Secu i ies Regula o y Commission issued he ac
“Measu es o Equi y Incen i e Adminis a ion o Lis ed
Companies” in 2005. Howe e , he e idence sugges s ha
many companies a e ye o adop he equi y-based incen i e
plans (Hass e al., 2016), al hough ecen e idence sugges s
ha equi y-based compensa ion a angemen s a e gaining
ac ion, as e idenced in academic publica ions (Hass e al.,
2016; B. Liu e al., 2019; D. L. Zhang e al., 2020).
The e o e, new insigh s can be gained in he ou namen
incen i e li e a u e in China i u u e s udies could ake he
equi y incen i es in o conside a ion.
Sun e al. 159
Acknowledgemen s
We app ecia e help ul commen s om he Associa e Edi o ,
Claudio Giache i, and he wo anonymous e iewe s.
Decla a ion o con lic ing in e es s
The au ho (s) decla ed no po en ial con lic s o in e es wi h
espec o he esea ch, au ho ship, and/o publica ion o his
a icle.
Funding
The au ho (s) ecei ed no inancial suppo o he esea ch,
au ho ship, and/o publica ion o his a icle.
No es
1. We ollow Ben ley-Goode e al. (2013) in de eloping ou
s a egy sco e (STRATEGY). This comp ehensi e sco e is
cons uc ed using six inancial cha ac e is ics. The high
(low) sco e indica es p ospec o (de ende ) i ms, espec-
i ely. Please see “Measu emen o business s a egy” sec-
ion o mo e de ails.
2. “Pay cap” policy aims o educe he compensa ion di e -
ence be ween he a e age cash compensa ion o execu i es
and a e age annual sala y o employees om a a io o 12:1
o 7:1 o 8:1 o he Chinese s a e-owned en e p ises (SOEs;
S a e Council, 2014).
3. I he i m’s ul ima e sha eholde is cen al go e nmen , i is
conside ed a cen al s a e-owned en e p ise (any cen al go -
e nmen uni , such as Minis y o Finance o Cen al Indus ial
En e p ises Adminis a ion Commi ee) in China. I he i m’s
ul ima e sha eholde is a local go e nmen , i is conside ed
a local s a e-owned en e p ise (any depa men in he local
go e nmen , such as Bu eau o S a e Asse s Managemen o
Finance Bu eau; Wang e al., 2008).
4. SOE e o m in China has gone h ough a se ies o de el-
opmen s since he 1970s (K. J. Lin e al., 2020). The aim
o hese e o ms has been o ans o m SOEs in o mode n
co po a ions by p omo ing mixed owne ship, ec ui ing
p o essional manage s, es ablishing co po a e boa ds, and
au ho izing hem o make ma ke decisions (S a e Council,
2015; The Sup eme People’s Cou o he People’s Republic
o China, 2013).
5. Indus ies a e de ined using China Secu i ies Regula o y
Commission (CSRC) indus y code in 2012.
Re e ences
Agga wal, R. K., & Samwick, A. A. (2006). Empi e-builde s
and shi ke s: In es men , i m pe o mance, and manage ial
incen i es. Jou nal o Co po a e Finance, 12(3), 489–515.
A end, R. J. (2019). Chea o win: How o hack ou namen he-
o y. Business Resea ch Qua e ly, 22(4), 216–225.
Aus in, P. C. (2011). An in oduc ion o p opensi y sco e me h-
ods o educing he e ec s o con ounding in obse a ional
s udies. Mul i a ia e Beha io al Resea ch, 46(3), 399–424.
Bake , G. P., Jensen, M. C., & Mu phy, K. J. (1988). Compensa ion
and incen i es: P ac ice s. heo y. The Jou nal o Finance,
43(3), 593–616.
Bebchuk, L. A., & F ied, J. M. (2003). Execu i e compensa ion
as an agency p oblem. Jou nal o Economic Pe spec i es,
17(3), 71–92.
Bena, J., Fe ei a, M. A., Ma os, P. P., & Pi es, P. (2017). A e
o eign in es o s locus s? The long- e m e ec s o o eign
ins i u ional owne ship. Jou nal o Financial Economics,
126(1), 122–146.
Ben ley-Goode, K. A., New on, N. J., & Thompson, A. M.
(2017). Business s a egy, in e nal con ol o e inancial
epo ing, and audi epo ing quali y. Audi ing: A Jou nal
o P ac ice & Theo y, 36(4), 49–69.
Ben ley-Goode, K. A., Ome , T. C., & Twed , B. J. (2019). Does
business s a egy impac a i m’s in o ma ion en i on-
men ? Jou nal o Accoun ing, Audi ing & Finance, 34(4),
563–587.
Ben ley-Goode, K. A., Ome , T. C., & Sha p, N. Y. (2013).
Business s a egy, inancial epo ing i egula i ies, and
audi e o . Con empo a y Accoun ing Resea ch, 30(2),
780–817.
Be and, M., & Mullaina han, S. (2001). A e CEOs ewa ded
o luck? The ones wi hou p incipals a e. The Qua e ly
Jou nal o Economics, 116(3), 901–932.
Bloom, M., & Michel, J. G. (2002). The ela ionships among
o ganiza ional con ex , pay dispe sion, and among mana-
ge ial u no e . Academy o Managemen Jou nal, 45(1),
33–42.
Bognanno, M. L. (2001). Co po a e ou namen s. Jou nal o
Labo Economics, 19(2), 290–315.
B yan, D. B., & Mason, T. W. (2017). Execu i e ou namen
incen i es and audi ees. Ad ances in Accoun ing, 37,
30–45.
Bu ns, N., Minnick, K., & S a ks, L. (2017). CEO ou namen s:
A c oss-coun y analysis o causes, cul u al in luences,
and consequences. Jou nal o Financial and Quan i a i e
Analysis, 52(2), 519–551.
Chen, D., Kim, J. B., Li, O. Z., & Liang, S. (2017). China’s closed
py amidal manage ial labo ma ke and he s ock p ice c ash
isk. The Accoun ing Re iew, 93(3), 105–131.
Chen, G. Z., & Keung, E. C. (2019). The impac o business s a -
egy on inside ading p o i abili y. Paci ic-basin Finance
Jou nal, 55, 270–282.
Chen, J., Ezzamel, M., & Cai, Z. (2011). Manage ial powe he-
o y, ou namen heo y, and execu i e pay in China. Jou nal
o Co po a e Finance, 17(4), 1176–1199.
Chen, Y., Eshleman, J. D., & Soileau, J. S. (2017). Business s a -
egy and audi o epo ing. Audi ing: A Jou nal o P ac ice
& Theo y, 36(2), 63–86.
Chen, Y., & Je mias, J. (2014). Business s a egy, execu i e com-
pensa ion and i m pe o mance. Accoun ing & Finance,
54(1), 113–134.
Chen, Z., Hui, K. W., You, H., & Zhang, Y. (2016). Tou namen
incen i es and ea nings managemen [Wo king pape ].
h ps:// eposi o y.us .hk/i /bi s eam/1783.1-78915/1/
eaa2016aaa2016paygap.pd
Coles, J. L., Li, Z., & Wang, A. Y. (2018). Indus y ou namen
incen i es. The Re iew o Financial S udies, 31(4), 1418–1459.
Conyon, M. J., & He, L. (2011). Execu i e compensa ion and
co po a e go e nance in China. Jou nal o Co po a e
Finance, 17(4), 1158–1175.
160 Business Resea ch Qua e ly 27(2)
E iksson, T. (1999). Execu i e compensa ion and ou namen
heo y: Empi ical es s on Danish da a. Jou nal o Labo
Economics, 17(2), 262–280.
Fa a elli, M., F iesen, L., & Gangadha an, L. (2015). Selec ion,
ou namen s, and dishones y. Jou nal o Economic Beha io
& O ganiza ion, 110, 160–175.
Habib, A., & Hasan, M. M. (2017). Business s a egy, o e -
alued equi ies, and s ock p ice c ash isk. Resea ch in
In e na ional Business and Finance, 39, 389–405.
Habib, A., & Hasan, M. M. (2019). Business s a egy and labo
in es men e iciency. In e na ional Re iew o Finance, 21,
58–96. h p://doi.o g/10.1111/i i.12254
Habib, A., & Hasan, M. M. (2020). Business s a egies and annual
epo eadabili y. Accoun ing & Finance, 60, 2513–2547.
Hamb ick, D. C. (2007). Uppe echelon heo y: An upda e.
Academy o Managemen Re iew, 32(2), 334–343.
Hamb ick, D. C., & Mason, P. A. (1984). Uppe echelons: The
o ganiza ion as a e lec ion o i s op manage s. Academy o
Managemen Re iew, 9(2), 193–206.
Ha b ing, C., & I lenbusch, B. (2011). Sabo age in ou namen s:
E idence om a labo a o y expe imen . Managemen
Science, 57(4), 611–627.
Hass, L. H., Ta salewska, M., & Zhan, F. (2016). Equi y incen-
i es and co po a e aud in China. Jou nal o Business
E hics, 138(4), 723–742.
He, L., & Fang, J. (2016). Subna ional ins i u ional con ingen-
cies and execu i e pay dispe sion. Asia Paci ic Jou nal o
Managemen , 33(2), 371–410.
Higgins, D., Ome , T. C., & Phillips, J. D. (2015). The in lu-
ence o a i m’s business s a egy on i s ax agg essi eness.
Con empo a y Accoun ing Resea ch, 32(2), 674–702.
Holms om, B. (1992). Con ac s and he ma ke o execu i es:
Commen . In L. We in, & H. Wijkande (Eds.), Con ac
economics (pp. 212–217). Blackwell.
Hoskisson, R. E., Hi , M. A., Tu k, T. A., & Tyle , B. B. (1989).
Balancing co po a e s a egy and execu i e compensa ion:
Agency heo y and co po a e go e nance. Resea ch in
Pe sonnel and Human Resou ces Managemen , 7, 25–57.
Hu, F., Pan, X., & Tian, G. (2013). Does CEO pay dispe sion
ma e in an eme ging ma ke ? E idence om China’s lis ed
i ms. Paci ic-basin Finance Jou nal, 24, 235–255.
Huang, W., & Boa eng, A. (2017). Execu i e sha eholding, com-
pensa ion, and analys o ecas o Chinese i ms. Applied
Economics, 49(15), 1459–1472.
I ne , C. D., La cke , D. F., & Rajan, M. V. (1997). The choice
o pe o mance measu es in annual bonus con ac s. The
Accoun ing Re iew, 72(2), 231–255.
Jensen, M. C., & Meckling, K. J. (1976). Theo y o he i m:
Manage ial beha io , agency cos s and owne ship s uc u e.
Jou nal o Financial Economics, 3(4), 305–360.
Jia, N. (2018). Tou namen incen i es and s ock p ice c ash isk.
Accoun ing Ho izons, 32(3), 101–121.
Jiang, W., Lin, B., Liu, Y., & Xu, Y. (2019). Chai pe son col-
lec i ism and he compensa ion gap be ween manage s and
employees: E idence om China. Co po a e Go e nance.
An In e na ional Re iew, 27(4), 261–282.
Kale, J. R., Reis, E., & Venka eswa an, A. (2009). Rank-o de
ou namen s and incen i e alignmen : The e ec on i m
pe o mance. The Jou nal o Finance, 64(3), 1479–1512.
Ka o, T., & Long, C. (2006). Execu i e compensa ion, i m pe -
o mance, and co po a e go e nance in China: E idence
om i ms lis ed in he Shanghai and Shenzhen S ock
Exchanges. Economic De elopmen and Cul u al Change,
54(4), 945–983.
Ka o, T., & Long, C. (2011). Tou namen s and manage ial
incen i es in China’s lis ed i ms: New e idence. China
Economic Re iew, 22(1), 1–10.
Kini, O., & Williams, R. (2012). Tou namen incen i es,
i m isk, and co po a e policies. Jou nal o Financial
Economics, 103(2), 350–376.
Knoebe , C. R., & Thu man, W. N. (1994). Tes ing he heo y o
ou namen s: An empi ical analysis o b oile p oduc ion.
Jou nal o Labo Economics, 12, 155–179.
Kubick, T. R., & Masli, A. N. (2016). Fi m-le el ou namen
incen i es and co po a e ax agg essi eness. Jou nal o
Accoun ing and Public Policy, 35(1), 66–83.
Lazea , E. P. (1995). Pe sonnel economics. MIT P ess.
Lazea , E. P., & Rosen, S. (1981). Rank-o de ou namen s as
op imum labo con ac s. Jou nal o Poli ical Economy,
89(5), 841–864.
Lee, K. W., Le , B., & Yeo, G. H. H. (2008). Execu i e pay
dispe sion, co po a e go e nance, and i m pe o mance.
Re iew o Quan i a i e Finance and Accoun ing, 30(3),
315–338.
Li, H., & Zhou, L. A. (2005). Poli ical u no e and economic
pe o mance: The incen i e ole o pe sonnel con ol in
China. Jou nal o Public Economics, 89(9–10), 1743–1762.
Li, M. H., Cui, L., & Lu, J. (2018). Va ie ies in s a e capi al-
ism: Ou wa d FDI s a egies o cen al and local s a e-
owned en e p ises om eme ging economy coun ies. In
A. Cue o-Cazu a (Ed.), S a e-owned mul ina ionals (pp.
175–210). Palg a e Macmillan.
Liao, L., Liao, G. M., & Shen, H. B. (2009). Ope a ing isk,
p omo ion incen i e and co po a e pe o mance. China
Indus ial Economics, 8, 119–130 (in Chinese).
Lim, E. K., Chalme s, K., & Hanlon, D. (2018). The in luence
o business s a egy on annual epo eadabili y. Jou nal o
Accoun ing and Public Policy, 37(1), 65–81.
Lin, B. X., & Lu, R. (2009). Manage ial powe , compensa ion
gap and i m pe o mance— E idence om Chinese public
lis ed companies. Global Finance Jou nal, 20(2), 153–164.
Lin, K. J., Lu, X., Zhang, J., & Zheng, Y. (2020). S a e-owned
en e p ises in China: A e iew o 40 yea s o esea ch and
p ac ice. China Jou nal o Accoun ing Resea ch, 13(1),
31–55.
Liu, B., Huang, W., & Wang, L. (2019). Pe o mance-based
equi y incen i es, es ing es ic ions, and co po a e inno-
a ion. Nankai Business Re iew In e na ional, 10, 138–164.
Liu, N. Y., B edin, D., Wang, L. M., & Yi, Z. H. (2014). Domes ic
and o eign ins i u ional in es o s’ beha io in China. The
Eu opean Jou nal o Finance, 20(7–9), 728–751.
Liu, Y., Mile ko , M. K., Wei, Z., & Yang, T. (2015). Boa d
independence and i m pe o mance in China. Jou nal o
Co po a e Finance, 30, 223–244.
Luong, L. H., Moshi ian, F., Nguyen, H. G. L., Tian, X., &
Zhang, B. (2014). Do o eign ins i u ional in es o s enhance
i m inno a ion? Jou nal o Financial and Quan i a i e
Analysis, 52(4), 1449–1490.
Sun e al. 161
Ma ch, J. G. (1991). Explo a ion and exploi a ion in o ganiza-
ional lea ning. O ganiza ion Science, 2(1), 71–87.
McLaughlin, K. J. (1988). Aspec s o ou namen models: A su -
ey. Resea ch in Labo Economics, 9(1), 225–256.
Miles, R. E., & Snow, C. C. (1978). O ganiza ional s a egy,
s uc u e and p ocess. McG aw-Hill.
Miles, R. E., & Snow, C. C. (1984). Designing s a egic human
esou ces sys ems. O ganiza ional Dynamics, 13(1), 36–52.
Miles, R. E., & Snow, C. C. (2003). O ganiza ional s a egy,
s uc u e, and p ocess. S an o d Uni e si y P ess.
Mu phy, K. J. (1999). Execu i e compensa ion. Handbook o
Labo Economics, 3, 2485.
Mu phy, K. J. (2013). Execu i e compensa ion: Whe e we a e,
and how we go he e. In G. Cons an inides, M. Ha is, & R.
S ulz (Eds.), Handbook o he economics o inance (Vol. 2,
pp. 211–356). Else ie .
Na issi, F., S idha an, V. G., Khedma i, M., Lim, E. K., &
E dokimo , E. (2017). Business s a egy, o e -(unde -)
in es men , and manage ial compensa ion. Jou nal o
Managemen Accoun ing Resea ch, 29(2), 63–86.
Pa k, K. (2017). Pay dispa i ies wi hin op managemen eams
and ea ning managemen . Jou nal o Accoun ing and Public
Policy, 36(1), 59–81.
Peng, W., Lei, G., & Gu, T. T. (2015). Business s a egy, ma -
ke compe i ion and ea nings managemen : E idence om
China. Chinese Managemen S udies, 9(3), 401–424.
Po e , M. E. (1980). Compe i i e s a egy. F ee P ess.
Po e , M. E. (1996). Wha is s a egy? Ha a d Business Re iew,
74(6), 61–78.
Qiao, Z., & Li, Z. H. (2019). Do o eign ins i u ional in es o s
enhance i m inno a ion in China? Applied Economics
Le e s, 26:13, 1125–1128.
Rajagopalan, N., & P esco , J. E. (1990). De e minan s o op
managemen compensa ion: Explaining he impac o eco-
nomic, beha io al, and s a egic cons uc s and he mod-
e a ing e ec s o indus y. Jou nal o Managemen , 16(3),
515–538.
Rosen, S. (1986). P izes and incen i es in elimina ion ou na-
men s. Ame ican Economic Re iew, 76, 701–715.
Rosenbaum, P. R., & Rubin, D. B. (1983). The cen al ole o he
p opensi y sco e in obse a ional s udies o causal e ec s.
Biome ika, 70(1), 41–55.
Rosenbaum, P. R., & Rubin, D. B. (1985). Cons uc ing a con ol
g oup using mul i a ia e ma ched sampling me hods ha
inco po a e he p opensi y sco e. The Ame ican S a is ician,
39(1), 33–38.
Rueke , R. W., & Walke , O. C. J . (1987). Ma ke ing’s in e ac-
ion wi h o he unc ional uni s: A concep ual amewo k
and empi ical e idence. Jou nal o Ma ke ing, 51(1), 1–19.
Sahib, P. R., Van de Laan, G., & Van Ees, H. (2018). The ide
ha li s all boa s? Acquisi ions and CEO-TMT pay dis-
pa i y in he Ne he lands. Managemen Decision, 56(9),
2038–2059.
Shen, C. H. H., & Zhang, H. (2018). Tou namen incen i es and
i m inno a ion. Re iew o Finance, 22(4), 1515–1548.
Sheng, Y., Huang, Z., Liu, C., & Yang, Z. (2019). How does
business s a egy a ec wage p emium? E idence om
China. Economic Modelling, 83, 31–41.
Shipman, J. E., Swanquis , Q. T., & Whi ed, R. L. (2017).
P opensi y sco e ma ching in accoun ing esea ch. The
Accoun ing Re iew, 92(1), 213–244.
Simons, R. (1987). Accoun ing con ol sys ems and business
s a egy: An empi ical analysis. Accoun ing, O ganiza ions
& Socie y, 12(4), 357–374.
Singh, P., & Aga wal, N. C. (2002). The e ec s o i m s a -
egy on he le el and s uc u e o execu i e compensa ion.
Canadian Jou nal o Adminis a i e Sciences, 19(1), 42–56.
Smi h, K. G., Gu h ie, J. P., & Chen, M. J. (1989). S a egy, size
and pe o mance. O ganiza ion S udies, 10(1), 63–81.
S a e Council. (2014). S a e council’s mee ing on e iewing and
passing a esolu ion o s a e-owned en e p ises execu i e
compensa ion. h p://www.go .cn/xinwen/2014-08/29/con-
en _2742373.h m
S a e Council. (2015). Guiding opinions o he Cen al Commi ee
and S a e Council on deepening he e o m o SOEs. h p://
english.www.go .cn/policies/la es _ eleases/2015/09/13/
con en _281475189210840.h m
Sun, S. L., & Habib, A. (2020). De e minan s and consequences
o ou namen incen i es: A su ey o he li e a u e in
accoun ing and inance. Resea ch in In e na ional Business
and Finance, 54, 101–256.
Sun, S. L., Habib, A., & Huang, H. J. (2019). Tou namen incen-
i es and s ock p ice c ash isk: E idence om China.
Paci ic-Basin Finance Jou nal, 54, 93–117.
The Sup eme People’s Cou o he People’s Republic o China.
(2013). Decision o he CCCPC on some majo issues con-
ce ning comp ehensi ely deepening he e o m. h p://eng-
lish.cou .go .cn/2015-10/08/con en _22130532.h m
Tang, S., & Sun, Z. (2014). Poli ical connec ion, op manage-
men compensa ion and co po a e u u e pe o mance.
Managemen Wo ld, 5, 93–105 (in Chinese).
Tao, Q., Sun, Y., Zhu, Y., & Yang, X. (2017). Poli ical connec-
ions and go e nmen subsidies: E idence om inancially
dis essed i ms in China. Eme ging Ma ke s Finance and
T ade, 53(8), 1854–1868.
Thomas, A. S., & Ramaswamy, K. (1996). Ma ching manage s
o s a egy: Fu he es s o he Miles and Snow ypology.
B i ish Jou nal o Managemen , 7(3), 247–261.
Tosi, H. L. J ., & Gomez-Mejia, L. R. (1989). The decoupling o
CEO pay and pe o mance: An agency heo y pe spec i e.
Adminis a i e Science Qua e ly, 34, 169–189.
T eacy, M., & Wie sema, F. (1995). The discipline o ma ke
leade s. Addison-Wesley.
Va ada ajan, P. R., & Cla k, T. (1994). Delinea ing he scope
o co po a e, business, and ma ke ing s a egy. Jou nal o
Business Resea ch, 31(2–3), 93–105.
Veliya h, R., Fe is, S. P., & Ramaswamy, K. (1994). Business
s a egy and op managemen compensa ion: The media -
ing e ec s o employmen isk, i m pe o mance and size.
Jou nal o Business Resea ch, 30(2), 149–159.
162 Business Resea ch Qua e ly 27(2)
Vi ano a, I. (2018). CEO o e con idence and co po a e ou na-
men s. h ps://ss n.com/abs ac =3155066
Wang, Q., Wong, T. J., & Xia, L. (2008). S a e owne ship, he
ins i u ional en i onmen , and audi o choice: E idence
om China. Jou nal o Accoun ing and Economics, 46(1),
112–134.
Woold idge, J. M. (2002). Econome ic analysis o c oss sec ion
and panel da a. MIT P ess, Camb idge, MA.
Xu, M., Kong, G., & Kong, D. (2017). Does wage jus ice ham-
pe c ea i i y? Pay gap and i m inno a ion in China. China
Economic Re iew, 44, 186–202.
Xu, Y., Liu, Y., & Lobo, G. J. (2016). T oubled by unequal pay
a he han low pay: The incen i e e ec s o a op manage-
men eam pay gap. China Jou nal o Accoun ing Resea ch,
9(2), 115–135.
Yanado i, Y., & Ma le , J. H. (2006). Compensa ion s a egy:
Does business s a egy in luence compensa ion in high-
echnology i ms? S a egic Managemen Jou nal, 27(6),
559–570.
Ye mack, D. (1997). Good iming: CEO s ock op ion awa ds and
company news announcemen s. The Jou nal o Finance,
52(2), 449–476.
Yuan, Y., Lu, L. Y., Tian, G., & Yu, Y. (2018). Business s a -
egy and co po a e social esponsibili y. Jou nal o Business
E hics, 162, 359–377.
Zhang, D. L., Zhang, T., & Guanghua Ma, G. H. (2020). Can
non-execu i e equi y incen i es educe in e nal con ol
ine ec i eness? E idence om China. Accoun ing and
Finance, 60(5), 4467–4496.
Zhang, H., Huang, H. J., & Habib, A. (2018). The e ec o ou namen
incen i es on inancial es a emen s: E idence om China. The
In e na ional Jou nal o Accoun ing, 53(2), 118–135.
Zhang, Y., & Li, X. (2006). Owne ship s uc u e and co po a e
di e si ica ion. Business and Poli ics, 8(1), 1–19.
Sun e al. 163
Appendix 1. Va iable de ini ions.
LnGAP Na u al loga i hm o he pay gap calcula ed as mean o op h ee execu i es’ compensa ion minus mean o he
es o he execu i es’ compensa ion
LnVPSTD Na u al loga i hm o he s anda d de ia ion o he pay di e en ials be ween he o al compensa ion o op
execu i es and he CEO. LnVPSTD is he na u al loga i hm o he s anda d de ia ion o he VPs’ compensa ion,
excluding he CEO’s compensa ion, which ep esen s he pay di e ence be ween indi idual VPs
STRATEGY Disc e e sco e wi h alues anging om 6 o 30 whe e high (low) alues indica e p ospec o (de ende ) i ms,
espec i ely.
Business s a egy composi e sco e is cons uc ed by using he ollowing six fi m-le el cha ac e is ics: (1) he
a io o esea ch and de elopmen (R&D) expense o o al sales (a measu e o a i m’s endency o de elop
new p oduc s); (2) he a io o employees o sales (a measu e o i m’s capaci y o p oduce and dis ibu e i s
goods and se ices e icien ly); (3) a measu e o employee luc ua ions (s anda d de ia ion o o al numbe
o employees); (4) he 1-yea sales g ow h a e (a measu e o i m’s his o ical sales g ow h); (5) he a io
o selling, gene al, and adminis a i e (SG & A) expenses o sales (a measu e o i ms’ e o on ma ke ing
and sales); and (6) capi al in ensi y using ne p ope y, plan , and equipmen (PPE) di ided by o al asse s (a
measu e a i ms’ ocus on p oduc ion)
PROSPECT
DEFEND
A dummy a iable coded 1 i he s a egy sco e is be ween 24 and 30 (bo h inclusi e), and 0 o he wise.
A dummy a iable coded 1 i he s a egy sco e is be ween 6 and
12 (bo h inclusi e), and 0 o he wise
DEFEND A dummy a iable coded 1 i he s a egy sco e is be ween 6 and 12 (bo h inclusi e), and 0 o he wise
ANALYZE Remaining obse a ions (i.e., obse a ions wi h a STRATEGY sco e anging om 13 o 23 (bo h inclusi e)
SIZE The na u al loga i hm o he o al asse s
LEV To al deb s di ided by o al asse s
MTB The ma ke - o-book a io o i m i in yea , calcula ed as ma ke alue o equi y/book alue o equi y
SGROW Sales g ow h measu ed as (Sales −Sales −1/Sales −1)
ROE Ne income di ided by sha eholde s’ equi y
DUAL Fi m’s chie execu i e o ice (CEO) duali y, which equals one i he CEO also holds he posi ion o he chai
o he boa d, and ze o o he wise
AGE CEO’s age
CEOHOLD The na u al loga i hm o numbe o sha es owned by he CEO wi hin he i m
TENURE The na u al loga i hm o he numbe o mon hs ha he CEO has been wi h he i m
CEOBRD An indica o a iable ha equals one i he CEO si s on he co po a e boa d, and ze o o he wise
BSIZE Na u al loga i hm o he numbe o di ec o s on he boa d
BIND Independence o he boa d, which is measu ed as he a io o he numbe o independen di ec o s o e he
o al numbe o di ec o s on he boa d
MOWN The pe cen age o ou s anding sha es owned by a i m’s execu i e
LnGDP Na u al loga i hm o egional GDP (in 0.1 billion CNY)
SOE An indica o a iable ha equals one i he i m is a s a e-owned en e p ise (SOE), and ze o o he wise
SOE_
Cen al
An indica o a iable ha equals one i he i m is a cen ally con olled s a e-owned i m, and ze o i he i m
is con olled by local go e nmen
QFII An indica o a iable ha equals one i he i m has sha es owned by any quali ied o eign ins i u ional
in es o s (QFII), and ze o o he wise
