An Investigation of the Transmission Mechanism of Executive Compensation Control to the Operating Performance of State-Owned Listed Companies

Round 1

Reviewer 1 Report

The subject of the article is interesting. However, there are a lot of questions regarding the subject:

• Are the findings based on 2015 data relevant now? Which as the goal of the authors to study facts from 8 years ago?
• Did the entry data come from statistics, or from real research?
• How can conclusions be drawn only from some public indicators?
• Is the whole board of executives involved, or is there an analyze based on their competences and hierarchy?
• Did something happen after the studies published in 2014?
• The authors refer to managers` behavior and relate it to  salaries, but no results in the research. It`s normal, because no investigation was provided.
• Are there limitations of the study?
• Hypotheses cannot be validated only based on methods, like regression.

Author Response

We thank you for your detailed comments and suggestions on our paper. We have carefully considered and fully addressed all the comments raised by the reviewers in this revision. Our point-to-point response to your comments is presented as follows.

 

Reviewer 1

 

The subject of the article is interesting. However, there are a lot of questions regarding the subject:

 

Comment 1: Are the findings based on 2015 data relevant now? Which as the goal of the authors to study facts from 8 years ago?

Response: The findings are based on data from 2010 – 2014 to represent information before the implementation of the salary limit order in 2015, and another set of data from 2015 – 2017 for information after 2015. This data is not limited to just 2015, and as such, the study comprehensively studies statistical changes over nearly a full decade. The results should be still valid today, but the study can be redone using periods of time stretching further prior to 2015 up to the present. We aim to do this in a subsequent publication

Comment 2: Did the entry data come from statistics, or from real research?

Response: The entry data came from statistics provided by a variety of statistical yearbooks produced by relevant government departments in China.

Comment 3: How can conclusions be drawn only from some public indicators?

Response: Because of the availability of public indicators, ROA represents enterprise business performance, overhead represents in-service consumption, and management behavior represents management behavior through investment behavior and M&A frequency are also common practices in many domestic literatures.

Comment 4: Is the whole board of executives involved, or is there an analyze based on their competences and hierarchy?

Response: The whole board of executives is involved. Unfortunately, as far as we are aware, there isn’t any data that breaks down executives by competences and hierarchy. We believe that if that is made publicly available, such information would be very beneficial to future studies and we thank the reviewer for the comment.

Comment 5: Did something happen after the studies published in 2014?

Response: What occurred was the implementation of the salary limit order in 2015, and that would affect managers’ behaviors and that is why we chose to do this study.

Comment 6: The authors refer to managers’ behavior and relate it to salaries, but no results in the research. It`s normal, because no investigation was provided.

Response: Yes, we do not have enough information to go into such deep detail with our study, but we do hope to do another study if such data becomes available.

Comment 7: Are there limitations of the study?

Response: Yes, there are. We have added the following to the conclusion:

A major limitation of the present study is the reliability and validity of the measures used in this paper which in part is due to the data available to use in our study and the appropriate statistical tools of which to study them as provided in the literature. To ensure that the results and conclusions presented here are robust, future research should use longer intervals of data on either side of 2015 (i.e., before and after the imposition of the SLO) and more advanced statistical techniques. Moreover, because only Chinese listed companies have an obligation to publish their financial data, this study is biased towards them or SOES as sample data. Additionally, only the most outstanding companies in a given industry are represented in the data and as such, less profitable companies were necessarily neglected, potentially skewing the present results and conclusions. An expanded dataset may change the conclusions of this study, and when available, future research should use it to test this study’s hypotheses.

Comment 8: Hypotheses cannot be validated only based on methods, like regression.

Response: While we agree that other methods, other than regression, can and should be used to validate hypotheses, it is not currently feasible to do so with the data available for our study. Therefore, we chose regression as it is widely used in this field and produces results that we can be confident in.

Author Response File: Author Response.pdf

Reviewer 2 Report

Dear authors,

First of all, I am glad to have the opportunity to read the article entitled “An Investigation of the Transmission Mechanism of Executive Compensation Control to the Operating Performance of State-Owned Listed Companies”, that I have read with great interest.

I would like to say that the topic of this paper is relevant, but from my humble point of view, the paper has some points, which should be significantly improved. In my view, the revised version should undergo a new assessment process.

Now, I would like to make some comments and suggestions that should always be understood in a positive way and considering that the different observations constitute different avenues that may allow improving this interesting research and facilitate its publication and impact in the subsequent specialized literature. With this initial caveat in mind, I would like to make the following observations and recommendations to the authors for their reflection and introduction of the changes they consider appropriate:

1) In the INTODUCTION section, the authors should clarify and justify the research problem in a clearer way. and please mention the research question/s more clearly

2) The INTODUCTION section in my opinion should be shortened and some information should be transferred to the Discussion section.

3) The reliability and validity of the measures are not addressed

4) In the Research Methods section, the authors they should explain whether the sample is representative of the population they want to investigate.

5) In the discussion section, it seems like the results section, please discuss your results in terms of previous studies and add the theoretical and empirical implications and contribution.

For all these reasons, I think this article needs a major revision,

 

 

Author Response

Reviewer 2

Comment 1: In the INTRODUCTION section, the authors should clarify and justify the research problem in a clearer way. and please mention the research question/s more clearly.

Response: This paper intends to study the following questions: First, does executive salary restriction have an impact on the business performance of state-owned enterprises? Second, if it has an impact, is it caused by executives' increasing in-service consumption? Third, if there is an impact, is it caused by senior management inaction?

We have added this to the introduction.

Comment 2: The INTRODUCTION section in my opinion should be shortened and some information should be transferred to the Discussion section.
Response: We have incorrectly labeled our Section 5 as the ‘Discussion’ when it is in fact a continuation of our results. If you still believe that we should move information from the discussion to a newly created Discussion section, please let us know and we’d be happy to comply.

Comment 3: The reliability and validity of the measures are not addressed.

Response: The measures mentioned in this paper are tentative and have not been verified yet. The main work is to prove that the executive salary limit affects the business performance of enterprises in which way. We have added this to the limitations of the study in the conclusion.

Comment 4: In the Research Methods section, the authors they should explain whether the sample is representative of the population they want to investigate.

Response: We have added the following to Lines 270 – 274:

It should be noted that within China, only listed companies have an obligation to publish their financial data, and as a result, only listed companies or SOEs are used as sample data. Additionally, because there are stringent requirements for Chinese listed companies, only the most outstanding companies in a given industry are thus most typical of the dataset.

Comment 5: In the discussion section, it seems like the results section, please discuss your results in terms of previous studies and add the theoretical and empirical implications and contribution.

Response: Section 5 is not discussion where we discuss the results in terms of previous studies. Rather, its meant to delve deeper into the primary mechanisms of the SLOs on on-the-job consumption. We have rephrased Section 5 to read “An Investigation on the Primary Mechanisms”.

Author Response File: Author Response.pdf

Reviewer 3 Report

The authors examine payroll control as an effective mechanism used to regulate the incentives and behavior of executives in state-owned public companies. The topic is interesting and relevant. Although the rough conclusion is obvious, the authors study this topic in great detail and come up with very interesting conclusions. Just one note: please provide in all your formulas (1)-(5) a rationale for why you use certain variables in your econometric calculations and whether their number is optimal. Please make it more detailed.

Comments for author File: Comments.pdf

Author Response

Comment 1: please provide in all your formulas (1)-(5) a rationale for why you use certain variables in your econometric calculations and whether their number is optimal. Please make it more detailed.

Response: We have provided a detailed explanation for our variable selection choices in Lines 430 – 453.

Round 2

Reviewer 2 Report

I i can accept the paper in its current form

Best regrds 

Author Response

Thank you for your approval of our revised draft