Management gender diversity, executives compensation and firm performance

• DOI: https://doi.org/10.1108/IJAIM-05-2021-0109
• Published date: 07 December 2021
• Date: 07 December 2021
• Pages: 115-142
• Subject Matter: Accounting & finance,Accounting/accountancy,Accounting methods/systems
• Author: Chenxuan Chen,Abeer Hassan

Management gender diversity,

executives compensation and f‌irm

performance –evidence from

growth enterprises markets (gem)

listed companies in China

Chenxuan Chen

Faculty of Law Business and Social Sciences, University of Glasgow,

Glasgow, UK, and

Abeer Hassan

Department of Accounting and Finance, Faculty of Business and Creative

Industries, University of the West of Scotland, Hamilton, UK

Abstract

Purpose –This paper aimsto contribute to the discussion on the executives’team and f‌irmperformance by

investigating the relationships between executives’compensation, management gender diversity and f‌irm

f‌inancialperformance in growth enterprises market (GEM) listed f‌irms in China.

Design/methodology/approach –Data are collected from461 companies listed on GEM boards during

the period from the year 2016 to 2018. Specif‌ically,executives’compensation and female executivesare set as

the independentvariables, and the proxy selected of corporate performanceis Tobin’sQ ratio.

Findings –The results show that the correlation between corporate performance and executive cash payment is

not signif‌icant, while executives’equity-based compensation shows a signif‌icant positive correlation with f‌irm

performance. In addition, the participation of female executives isn egativelyassociated with f‌irm performance.

Research limitations/implications –The results have practical implications for governments,

policymakers and regulatory authorities, by indicating the importance of women to corporate suc cess. In particular,

the f‌indings of this paper emphasize the specif‌ic background of GEM in China and provide empirical support for

the value of women’s participation in corporate governance. In addition, the f‌inding on the relationship between

executive compensation and corporate performance of GEM listed companies provides gui dance for the

establishment of a performance compensation system of GEM listed companies in China.

Originality/value –This paper provides new evidence for the current literature of executive team and

corporate performance. This is the f‌irst paper to adopt triangulation in theories from different disciplines

including optimal contractual approach,managerial power approach as new perspectives of agency theory,

upper echelons theory, motivational-hygiene theory and women leadership style theory. The results will

contribute to provide guidance for enterprises to formulate an eff‌icient compensation system and build a

reasonablesenior management team structure.

Keywords Firm performance, Executive compensation, Gender diversity, Chinese GEM listed f‌irms

Paper type Research paper

1. Introduction

Corporate governance is a mechanism that shareholders use to monitor f‌irm executives to

minimize agencycosts (Caskey and Laux, 2017;Zhang et al., 2019).The relationship between

Management

gender

diversity

115

Received24 May 2021

Revised25 September 2021

Accepted26 October 2021

InternationalJournal of

Accounting& Information

Management

Vol.30 No. 1, 2022

pp. 115-142

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-05-2021-0109

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1834-7649.htm

executive remuneration and corporate governancehas been well-documented inthe previous

literature (Core et al., 1999;Firth et al., 2007;Zhong et al., 2014;Baixauli-Soler and Sanchez-

Marin, 2015;Deschenes et al., 2015;Siddiqui, 2015;Ntim et al., 2017;Zhang et al., 2019).

Also, the relationship between executives’pay and f‌irm performance has always been a

topic of considerable controversy in the corporate governance literature (Ahmadi et al.,

2018;Catalyst, 2014; Dan, 2013; Ntim et al., 2015). These previous studies have investigated

the sensitivity of executive compensation/pay to f‌irm performance (Lippert and Porter,

1997;Schaefer, 1998;Mohan and Ainina, 2012;Dai et al., 2014;Yang and Hou, 2016;Wei

et al., 2017;Zhou et al., 2017). Cordeiro et al. (2013) f‌ind that Chinese executives are

rewarded more for positive accounting performance than they are penalized for negative

accounting performance. Using a large South African data set, Ntim et al. (2017) f‌ind that

CEO power and corporate governance structure have a moderating effect on the executive

compensation performance sensitivity. They reveal that the sensitivity is higher in f‌irms

with more reputable, founding and shareholding CEOs, higher ownership by directors and

institutions and independent nomination and remuneration committees, but lower in f‌irms

with larger boards, more powerful and long-tenured CEOs. More studies have investigated

executive compensation, showed that remuneration is critical in f‌irm performance and

executive compensation appears to be positively associated with corporate performance

(Ataay, 2018;Conyon, 2014;Schultz et al., 2013). These studies mention that the

relationship between executive compensation and corporate performance is driven from

agency theory (Bebchuk and Fried, 2003). Under agency theory, a reasonable and effective

compensation structure can align the interest of managers with those of shareholders and

reduce the agency cost (He et al., 2014). Therefore, formulating an eff‌icient compensation

system is of great signif‌icance for organizations.

Another dimension of the modern economy is the genderdifference of senior executives

that plays a critical role in enterprises. Some empirical studies have shown that women’s

decisions are more vigilantthan those of men (Levi et al., 2014;Ain et al., 2020). For instance,

female directors request more in-depth audits (Gul et al.,2011); are tough monitors (Adams

and Ferreira, 2009), enhance perceptions and experiences that result in increased board

decision quality with improving the f‌irm’s legitimacy (Hillman et al.,2007;Bernile et al.,

2018), improve thecompany image by helping recruit top female employees(Gul et al.,2011);

develop the f‌irm’s external legitimacy by attracting talented employees (Hambrick, 2007)

and help in increasing earnings qualityand accounting conservatism (Garcia-Sanchez et al.,

2017). Also, Faff et al.’s(2011) study suggests that women on boards change the group

dynamics of communication, interpersonal interaction and decision-making in a positive

way. This leads to more creative,innovative and non-traditional decisions and better board

performance.

In addition to the above, some researchers have focused on the economic benef‌its of

female directors in the boardroom by studying the association of gender diversity and f‌irm

performance, but their f‌indingshave provided mixed results (Adams and Ferreira, 2009;Liu

et al., 2014;Post and Byron, 2015;Singhathep and Pholphirul, 2015;Flabbi et al.,2019).

Numerous empirical studies have shown that gender diversity on the board has economic

benef‌its and changes boardroom dynamics. For example, female directors are more

operations-focused than male directors(Adams and Ferreira, 2009). Female participation on

the board also sometimes provides contradictory views because of which discussions of

complex decisions on the board are improved(Gul et al., 2011).

Based on the above discussion, we noticed that previous literature offers relatively little

guidance to China, as corporate governance in China is signif‌icantly weaker than that in

developed countries (Allen et al.,2005). Furthermore, there are still a series of problems in

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