This article examines the extent to which agency theory may explain chief executive officer (CEO) compensation in Chinese state‐owned enterprises during the 1980s. We find support for the agency theory: CEO pay sensitivity decreases with the variance of performance. Moreover, the performance sensitivity of CEO pay increases with the marginal return to executive action. While the elasticity of pay to sales is slightly smaller than that found for conventional firms in the West generally, our estimate of the semielasticity of pay with respect to profitability is comparable with estimates for regulated industries in the United States.

The literature on institutions has been challenged on grounds of reverse causality, measurement error in institutional indicators, and heterogeneity. This paper uses firm-level data across countries to confront these challenges. We focus on the effect on firm-level external finance, and “unbundle” institutions in the sense of Acemoglu and Johnson (2005), while addressing the largely-ignored issue of measurement error in institutional indicators. We find that contracting institutions that facilitate transactions between private parties exert little effect on firms' access to external finance. In contrast, property rights institutions that constrain political and economic elites exhibit a strong positive association with access to external finance. Interestingly, the association between property rights institutions and external finance tends to be stronger for working capital than for investment. Our results suggest that an important channel for institutions and especially property right institutions to affect development is through access to external finance.

Parental involvement in marriage matchmaking may distort the optimal spouse choice because parents are willing to substitute love for money. The rationale is that the joint income of married children can be shared among extended family members more easily than mutual attraction felt by the couple themselves, and as a result, the best spouse candidate in the parents' eyes can differ from what is optimal to the individual, even though parents are altruistic and care dearly about their children's welfare. We find supporting evidence for this prediction using a unique sample of urban couples in China in the early 1990s.