5. Conclusions and future research
The main aim of this study was to examine the impact of CEOs' political connections on firm performance and CEO pay using a sample of private Chinese firms. After controlling for factors that are likely to influence executive compensation, as documented in prior studies, we found that the presence of CEO political connections is significantly and positively related to firm performance and CEO pay measured by cashbased payment. Furthermore, we found that political connections exert a stronger influence on firm performance and on CEO pay in less-developed regions.
We took our analysis a step further to examine whether local political connections influence firm performance and executive pay based on the theory that local political ties are particularly helpful to a firm. Our results showed that CEOs' local political connections is positively associated with firm performance and CEO pay, and the positive association does not weaken in developed regions, which highlights the salience of local political connections.
Together our results demonstrate the importance of executives' political connections in affecting firm performance and determining executive pay in the current Chinese context. This study lends support to the notion that political connections are strategically important for private Chinese firms to gain political legitimacy and acquire access to government-controlled resources given the relatively underdeveloped institutions in China.
