Insider Trading In China's Listed Companies Analysis Influence On Executive Pay

This paper investigates the association between corporate level insider trading restrictions and executive compensation in the Chinese securities market. By using a trading window proxy for the presence of those restrictions, I examine the predictions that restricted corporate insiders would demand higher compensation and that restricted companies would provide more usage of equity incentives and risk incentives to executives. My results show that Chinese listed companies in which insiders are restricted provide higher level of compensation to executives than those not restricting insiders, after controlling for some economic determinants of payments. Moreover, I find that restricted insiders are offered higher equity incentives through incentive compensation, such as stock options, in respect to increasing their stock prices, while no evidence shows that those companies restricting insiders’trades increase risk incentives in respect to increasing stock price volatility in contrast to prior empirical research. Overall, my results are in consistent with the previous study that insider trading plays a role in company’s contracting with executives, influencing corporate governance structure, but being characterized by its transformational emerging economy.