Abstract: This paper argues that, in non-real estate businesses, high housing price attracts high investments by firms, which improve firms' performance; however, the performance is difficult to measure executives' effort, and its quality is also poor. According to optimal contract theory, the importance of firms' performance in executive compensation contracts will decline as well, indicating a decrease in executive pay-performance sensitivity. Using the house price data of 35 large- and medium-sized Chinese cities and of listed firms in China's non-real estate industry, this study reveals that high housing price significantly reduces executive pay-performance sensitivity, particularly when the executive compensation contract is effective. The above findings are robust to difference-in-differences (DID) model. The paper is not only an important supplement to the research literature on executive pay-for-performance sensitivity, but more importantly, provides a new perspective to study the impact of house price on enterprises.

Key words: housing prices, executive pay, enterprise performance, executive pay-performance sensitivity