Is Cross-listing Associated with Stronger Executive Incentives? Evidence from China

This study examines whether firms incorporated in mainland China benefit from cross-listing in Hong Kong, China. The Hong Kong Stock Market has more stringent governance rules and a better investor protection than the mainland market. Hong Kong companies generally provide strong incentives to executives via equity-based compensation. Have cross-listed companies learned from Hong Kong local firms in adopting strong executive incentives? The evidence from this study suggests that top executive compensation of cross-listed firms is more sensitive to sales growth than mainland firms without cross-listing. However, compared to that of Hong Kong firms, executive pay of cross-listed firms are less sensitive to stock returns. Further study shows that it is necessary to differentiate state and non-state companies among the cross-listed firms, as they exhibit different patterns of executive incentives