Executive shareholding, compensation, and analyst forecast of Chinese firms

We examine the impact of executive and leadership shareholding and cash compensation on analyst forecast error and dispersion as proxies for information asymmetry. We find that firms pay higher compensation (or excess compensation) to executives and directors are associated with higher information asymmetry. The positive association is stronger where executives’ and directors’ shareholdings are higher. Shareholding appears to facilitate managerial entrenchment and gives highly paid executives/leadership stronger structural power which adversely affects information disclosure leading to larger forecast error and dispersion. These results are robust to different measures of compensation and alternative models controlling for the predictability of firm-level earnings. Our findings indicate that executive/director shareholding and compensation do not provide sufficient incentives for information disclosure by Chinese firms.