Can pay‐performance sensitivity cure zombie firms? Evidence from China

Abstract

The proper disposal of zombie firms is the key to supply‐side structural reform. Based on data of A‐share markets from 2009 to 2018, this study explores the impact of pay‐performance sensitivity (PPS) of executives on curing zombie firms. The findings show that PPS has a significant effect on curing zombie firms, and the innovation performance plays a partially mediating role between PPS and cured zombie firms. Further analysis shows that the above effects are heterogeneous, demonstrating that the effects of PPS on curing zombie firms are more pronounced for technology‐intensive industrial firms and non‐state‐owned firms.

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