Effects of large shareholders´ tunneling on executive incentive contract

Large shareholders´ tunneling can affect executive incentive contracts. We divide the executive incentive into explicit compensation and implicit incentive. Data from publicly listed companies in China during 2008-2013 shows that tunneling leads to decline in executive pay-performance sensitivity. In addition, tunneling also leads to significant increases in position-related consumption. The results indicate that tunneling reduces the effectiveness of executive incentive contracts.