Does Accrual-Based Pay Sensitivity Improve Firm Value? Evidence from Chinese Listed Firms

Abstract

This study employed data from non-financial listed companies on the Shanghai and Shenzhen A-share markets between 2000 and 2024 to construct an accrual-based profit-sharing performance sensitivity (PPS) metric. It examines the impact of such PPS on future firm value and introduces dual ownership separation (the gap between control rights and cash flow rights) as a moderating variable. It examines the impact of such PPS on future firm value and introduces dual ownership separation (the gap between control rights and cash flow rights) as a moderating variable. However, separation of ownership and control weakens this positive relationship, albeit with limited statistical significance, while separation itself exerts no significant direct effect on corporate value. The findings indicate that under China’s context of concentrated shareholding and prevalent earnings management, the incentive efficacy of PPS is constrained by governance structures. This study recommends strengthening earnings quality regulation, optimising disclosure practices, protecting minority shareholders, and tailoring compensation contract design to equity structures to enhance incentive effectiveness and corporate value.