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Managerial Private Benefits and Overinvestment

Author

Listed:
  • Zhan Lei
  • Cai Mingchao
  • Yaoyao Wang
  • Jing Yu

Abstract

According to agency theory, we hypothesize that underpayment of top management motivates management to overinvest. Using a sample of Chinese-listed companies for the period 2005-10, we assess the effect of managerial compensation on overinvestment and the effect of overinvestment on managerial private benefits, including future compensation and perquisites, as well as on firm performance. We find that underpayment does motivate overinvestment, which increases managerial private benefits but not firm value.

Suggested Citation

  • 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.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:3:p:126-161
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    Cited by:

    1. Jose Cuesta & Erik Alda, 2021. "Evaluating a citizen security pilot in Honduras: The economic benefits of a much reduced murder rate," Development Policy Review, Overseas Development Institute, vol. 39(5), pages 848-864, September.
    2. Habib, A. & Ranasinghe, D. & Huang, H.J., 2018. "A literature survey of financial reporting in private firms," Research in Accounting Regulation, Elsevier, vol. 30(1), pages 31-37.
    3. Martua Eliakim Tambunan & Hermanto Siregar & Adler Haymans Manurung & Dominicus Savio Priyarsono, 2017. "Related Party Transactions and Firm Value in the Business Groups in the Indonesia Stock Exchange," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 7(3), pages 1-1.
    4. 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.
    5. Winde, Frank & Kaiser, Friederike & Erasmus, Ewald, 2017. "Exploring the use of deep level gold mines in South Africa for underground pumped hydroelectric energy storage schemes," Renewable and Sustainable Energy Reviews, Elsevier, vol. 78(C), pages 668-682.

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