IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v90y2020icp54-65.html
   My bibliography  Save this article

Do policy burdens induce excessive managerial perks? Evidence from China’s stated-owned enterprises

Author

Listed:
  • Jian, Jianhui
  • Li, Huaqian
  • Meng, Leah
  • Zhao, Chunxiang

Abstract

This paper explores the effect of policy burdens of China’s state-owned enterprises (SOEs) on senior executives’ excessive perks. The empirical analysis demonstrates that SOE policy burdens are significantly and positively correlated with senior executives’ excessive perks, indicating that SOE policy burdens increase agency cost. The results hold after controlling for potential endogeneity. Moreover, we find the following evidences. Strategic policy burdens of SOEs have a significantly greater impact on their senior executives’ excessive perks, compared with social policy burdens. The positive impact of SOE policy burdens on excessive perks is significantly weaker in east China due to the higher degree of marketization. The central government’s stricter supervision can also alleviate the positive correlation between policy burdens of centrally administered SOEs and senior executives’ excessive perks.

Suggested Citation

  • Jian, Jianhui & Li, Huaqian & Meng, Leah & Zhao, Chunxiang, 2020. "Do policy burdens induce excessive managerial perks? Evidence from China’s stated-owned enterprises," Economic Modelling, Elsevier, vol. 90(C), pages 54-65.
    • Handle: RePEc:eee:ecmode:v:90:y:2020:i:c:p:54-65
    DOI: 10.1016/j.econmod.2020.05.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999320301103
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2020.05.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Rajan, Raghuram G. & Wulf, Julie, 2006. "Are perks purely managerial excess?," Journal of Financial Economics, Elsevier, vol. 79(1), pages 1-33, January.
    2. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492, National Bureau of Economic Research, Inc.
    3. Duc Hong Vo, 2010. "The Economics Of Fiscal Decentralization," Journal of Economic Surveys, Wiley Blackwell, vol. 24(4), pages 657-679, September.
    4. Guofu Tan & Justin Yifu Lin, 1999. "Policy Burdens, Accountability, and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 89(2), pages 426-431, May.
    5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    6. Anthony M. Marino & Ján Zábojník, 2008. "Work‐related perks, agency problems, and optimal incentive contracts," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 565-585, June.
    7. Xunan Feng & Anders C. Johansson, 2017. "CEO Incentives in Chinese State-Controlled Firms," Economic Development and Cultural Change, University of Chicago Press, vol. 65(2), pages 223-264.
    8. Liang Sun & Chun Liu, 2012. "Capital province, political objectives and the post‐IPO policy burden," China Finance Review International, Emerald Group Publishing Limited, vol. 2(2), pages 121-142, April.
    9. Ying Hao & Jing Lu, 2018. "The Impact of Government Intervention on Corporate Investment Allocations and Efficiency: Evidence from China," Financial Management, Financial Management Association International, vol. 47(2), pages 383-419, June.
    10. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    11. Liao, Guanmin & Chen, Xin & Jing, Xin & Sun, Jianfei, 2009. "Policy burdens, firm performance, and management turnover," China Economic Review, Elsevier, vol. 20(1), pages 15-28, March.
    12. Lin, Justin Yifu & Li, Zhiyun, 2008. "Policy burden, privatization and soft budget constraint," Journal of Comparative Economics, Elsevier, vol. 36(1), pages 90-102, March.
    13. Kato, Takao & Long, Cheryl, 2006. "Executive Compensation, Firm Performance, and Corporate Governance in China: Evidence from Firms Listed in the Shanghai and Shenzhen Stock Exchanges," Economic Development and Cultural Change, University of Chicago Press, vol. 54(4), pages 945-983, July.
    14. Hongbin Cai & Hanming Fang & Lixin Colin Xu, 2011. "Eat, Drink, Firms, Government: An Investigation of Corruption from the Entertainment and Travel Costs of Chinese Firms," Journal of Law and Economics, University of Chicago Press, vol. 54(1), pages 55-78.
    15. Stigler, George J & Friedland, Claire, 1983. "The Literature of Economics: The Case of Berle and Means," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 237-268, June.
    16. Hanming Fang & Zhe Li & Nianhang Xu & Hongjun Yan, 2018. "In the Shadows of the Government: Relationship Building During Political Turnovers," NBER Working Papers 25300, National Bureau of Economic Research, Inc.
    17. Chen, Fengqin & Huyghebaert, Nancy & Lin, Sen & Wang, Lihong, 2019. "Do multiple large shareholders reduce agency problems in state-controlled listed firms? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    18. Brian J. Bushee & John E. Core & Wayne Guay & Sophia J.W. Hamm, 2010. "The Role of the Business Press as an Information Intermediary," Journal of Accounting Research, Wiley Blackwell, vol. 48(1), pages 1-19, March.
    19. Joseph P. H. Fan & T. J. Wong & Tianyu Zhang, 2013. "Institutions and Organizational Structure: The Case of State-Owned Corporate Pyramids," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(6), pages 1217-1252, December.
    20. Anthony B. Atkinson & Joseph E. Stiglitz, 2015. "Lectures on Public Economics Updated edition," Economics Books, Princeton University Press, edition 2, number 10493.
    21. Oliver Hart, 2001. "Financial Contracting," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1079-1100, December.
    22. Chen, Shimin & Sun, Zheng & Tang, Song & Wu, Donghui, 2011. "Government intervention and investment efficiency: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 259-271, April.
    23. Gupta, Atul & Misra, Lalatendu & Shi, Yilun, 2017. "Product-market competitiveness and investor reaction to corporate governance failures," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 134-147.
    24. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
    25. Li, Wei, 1997. "The Impact of Economic Reform on the Performance of Chinese State Enterprises, 1980-1989," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1080-1106, October.
    26. Zhang, Xiaobo, 2006. "Fiscal decentralization and political centralization in China: Implications for growth and inequality," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 713-726, December.
    27. Ningyue Liu & Liming Wang & Min Zhang, 2013. "Corporate Ownership, Political Connections and M&A: Empirical Evidence from China," Asian Economic Papers, MIT Press, vol. 12(3), pages 41-57, Fall.
    28. Lin, Justin Yifu & Cai, Fang & Li, Zhou, 1998. "Competition, Policy Burdens, and State-Owned Enterprise Reform," American Economic Review, American Economic Association, vol. 88(2), pages 422-427, May.
    29. Angela Andrews & Scott Linn & Han Yi, 2017. "Corporate governance and executive perquisites," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 16(1), pages 21-45, February.
    30. Li, Hongbin & Meng, Lingsheng & Wang, Qian & Zhou, Li-An, 2008. "Political connections, financing and firm performance: Evidence from Chinese private firms," Journal of Development Economics, Elsevier, vol. 87(2), pages 283-299, October.
    31. Gul, Ferdinand A. & Cheng, Louis T.W. & Leung, T.Y., 2011. "Perks and the informativeness of stock prices in the Chinese market," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1410-1429.
    32. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    33. Lili Dai & Jerry T. Parwada & Bohui Zhang, 2015. "The Governance Effect of the Media's News Dissemination Role: Evidence from Insider Trading," Journal of Accounting Research, Wiley Blackwell, vol. 53(2), pages 331-366, May.
    34. Zhan Lei & Cai Mingchao & Yaoyao Wang & Jing Yu, 2014. "Managerial Private Benefits and Overinvestment," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(3), pages 126-161, May.
    35. Seungwon Yu & Namryoung Lee, 2016. "Financial Crisis, Politically Connected CEOs, and the Performance of State-Owned Enterprises: Evidence from Korea," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(9), pages 2087-2099, September.
    36. Brickley, James A & James, Christopher M, 1987. "The Takeover Market, Corporate Board Composition, and Ownership Structure: The Case of Banking," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 161-180, April.
    37. Luo, Wei & Zhang, Yi & Zhu, Ning, 2011. "Bank ownership and executive perquisites: New evidence from an emerging market," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 352-370, April.
    38. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    39. Yaniv Grinstein & David Weinbaum & Nir Yehuda, 2017. "The Economic Consequences of Perk Disclosure," Contemporary Accounting Research, John Wiley & Sons, vol. 34(4), pages 1812-1842, December.
    40. C Edward Fee & Charles J Hadlock & Jing Huang & Joshua R Pierce, 2018. "Robust Models of CEO Turnover: New Evidence on Relative Performance Evaluation," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 7(1), pages 70-100.
    41. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    42. Andrei Shleifer & Robert W. Vishny, 1994. "Politicians and Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 995-1025.
    43. Li, Lixing, 2008. "Employment burden, government ownership and soft budget constraints: Evidence from a Chinese enterprise survey," China Economic Review, Elsevier, vol. 19(2), pages 215-229, June.
    44. Yermack, David, 2006. "Flights of fancy: Corporate jets, CEO perquisites, and inferior shareholder returns," Journal of Financial Economics, Elsevier, vol. 80(1), pages 211-242, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang, Ge & Guo, Bingnan & Lin, Ji, 2023. "The impact of green finance on enterprise investment and financing," Finance Research Letters, Elsevier, vol. 58(PD).
    2. Zhao, Yueyang & Mao, Jinzhou, 2023. "Mixed blessing: Mixed ownership reform and innovation behaviour of Chinese state-owned enterprises," Finance Research Letters, Elsevier, vol. 56(C).
    3. Liu, Xiaojie & Shen, Jim Huangnan & Deng, Kent, 2022. "Endowment Structure, property rights and reforms of large state-owned enterprises (SOEs) in China: Past, present and future," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 675-692.
    4. Liu, Lihua & Shu, Haicheng, 2022. "Mandatory dividend policy and perk consumption: Evidence from state-owned business groups in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    5. Kong Fanjing, 2024. "The Influences of Multi-Level Environmental Regulations on Firm Performance in China," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 18(1), pages 1-13.
    6. Szarzec, Katarzyna & Dombi, Ákos & Matuszak, Piotr, 2021. "State-owned enterprises and economic growth: Evidence from the post-Lehman period," Economic Modelling, Elsevier, vol. 99(C).
    7. Li, Bin & Liu, Xiaomei, 2023. "Communist party organization and abnormal compensation of enterprise executives," Finance Research Letters, Elsevier, vol. 57(C).
    8. Feng Niu & Liuzhen Zhang & Wunhong Su, 2023. "Association between state ownership participation and the performance of private firms: Evidence from China," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(4), pages 979-1006, October.
    9. Liu, Huan & Hou, Canran, 2023. "The external effect of institutional cross-ownership on excessive managerial perks," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 483-501.
    10. Tan, Wenhao & Wang, Qiong & Guo, Xiuyuan & Chen, Jiangting, 2022. "Political connections and managerial premiums in the labor market: Evidence from China," Economic Modelling, Elsevier, vol. 114(C).
    11. Qiao, Sen & Chen, Hsing Hung & Zhang, Rong Rong, 2021. "Examining the impact of factor price distortions and social welfare on innovation efficiency from the microdata of Chinese renewable energy industry," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    12. Wu, Howei & Xu, Bin, 2021. "Did state-owned enterprises do better during COVID-19? Evidence from a survey of company executives in China," Journal of Economics and Business, Elsevier, vol. 115(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hua Zhang & Yuanyang Song & Yuan Ding, 2015. "What Drives Managerial Perks? An Empirical Test of Competing Theoretical Perspectives," Journal of Business Ethics, Springer, vol. 132(2), pages 259-275, December.
    2. Xi, Dan & Wu, Yuze & Wang, Xue & Fu, Zhe, 2023. "Corporate social responsibility and excess perks," Journal of Empirical Finance, Elsevier, vol. 74(C).
    3. Chia-Ying Chan & Iftekhar Hasan & Chih-Yung Lin, 2021. "Agency cost of CEO perquisites in bank loan contracts," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1221-1258, May.
    4. Liu, Huan & Hou, Canran, 2023. "The external effect of institutional cross-ownership on excessive managerial perks," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 483-501.
    5. Liu, Lihua & Shu, Haicheng, 2022. "Mandatory dividend policy and perk consumption: Evidence from state-owned business groups in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    6. Cheng, Louis T.W. & Chan, Ricky Y.K. & Leung, T.Y., 2018. "Impact of perk expenditures and marketing expenditures on corporate performance in China: The moderating role of political connections," Journal of Business Research, Elsevier, vol. 86(C), pages 83-95.
    7. Xu, Nianhang & Li, Xiaorong & Yuan, Qingbo & Chan, Kam C., 2014. "Excess perks and stock price crash risk: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 419-434.
    8. Ting, Hsiu-I & Huang, Po-Kai, 2018. "CEOs’ power and perks: Evidence from Chinese banks," Journal of Economics and Business, Elsevier, vol. 97(C), pages 19-27.
    9. Hong, Yun & Yao, Youfu, 2024. "Can comment letters impact excess perks? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 91(C).
    10. Xiaoyi Ren & Xing Liu & Zongtao Tian, 2020. "Excess perks in SOEs: evidence from China," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 34(2), pages 152-165, November.
    11. Zuo, Ying & Xu, Weidong & Li, Donghui & Fu, Wentao & Lin, Bin, 2022. "Individualism and excess perk consumption: Evidence from China," Research in International Business and Finance, Elsevier, vol. 62(C).
    12. Dong, Wang & Ke, Yun & Li, Shuo & Chen, Xiangyu & Wan, Peng, 2021. "Does social trust restrain excess perk consumption? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1078-1092.
    13. Li, Bin & Yao, Yao & Shahab, Yasir & Li, Hai-Xia & Ntim, Collins G., 2020. "Parent-subsidiary dispersion and executive excess perks consumption," International Review of Financial Analysis, Elsevier, vol. 70(C).
    14. Xie, Sujuan & Lin, Bingxuan & Li, Jingjing, 2022. "Political Control, Corporate Governance and Firm Value: The Case of China," Journal of Corporate Finance, Elsevier, vol. 72(C).
    15. Zhao, Yujie & Zhou, Donghua & Zhao, Kangsheng & Zhou, Ping, 2019. "Is the squeaky wheel getting the grease? Earnings management and government subsidies," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 297-312.
    16. Chan, Chia-Ying & Nishikawa, Takeshi & Williams, Thomas C., 2023. "CEO perquisite compensation and M&A performance," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 162-177.
    17. Gul, Ferdinand A. & Cheng, Louis T.W. & Leung, T.Y., 2011. "Perks and the informativeness of stock prices in the Chinese market," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1410-1429.
    18. Xunan Feng & Anders C. Johansson, 2017. "CEO Incentives in Chinese State-Controlled Firms," Economic Development and Cultural Change, University of Chicago Press, vol. 65(2), pages 223-264.
    19. Ormazabal, Gaizka, 2018. "The Role of Stakeholders in Corporate Governance: A View from Accounting Research," CEPR Discussion Papers 12775, C.E.P.R. Discussion Papers.
    20. Xunan Feng & Anders C. Johansson, 2018. "Underpaid and Corrupt Executives in China’s State Sector," Journal of Business Ethics, Springer, vol. 150(4), pages 1199-1212, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:90:y:2020:i:c:p:54-65. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.