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Underpaid and Corrupt Executives in China's State Sector

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  • Feng, Xunan

    (Southwestern University of Finance and Economics)

  • Johansson, Anders C.

    (Stockholm China Economic Research Institute)

Abstract

This study examines the role of executive compensation in public governance. We collect data on corruption cases that involve top-level executives in Chinese listed state-controlled firms. We find a significant positive relationship between underpayment of executives and the likelihood of an investigation into corrupt behavior. We also show that corruption is positively associated with firm performance and that the relationship between underpayment of executives and corruption is influenced by firm performance, suggesting that top managers are more likely to engage in illicit behavior if they are compensated poorly while the firms under their control perform well. Finally, we find that pay-performance sensitivity decreases when top executives are involved in corruption investigations, indicating a lack of pecuniary incentives. Our empirical findings point towards an important relationship between executive compensation and corrupt behavior, thereby providing valuable input to the understanding of executive pay and its effects in China’s state sector.

Suggested Citation

  • Feng, Xunan & Johansson, Anders C., 2015. "Underpaid and Corrupt Executives in China's State Sector," Stockholm School of Economics Asia Working Paper Series 2015-37, Stockholm School of Economics, Stockholm China Economic Research Institute, revised 03 Jul 2015.
    • Handle: RePEc:hhs:hascer:2015-037
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    More about this item

    Keywords

    Compensation; Executives; Incentives; Corruption; State sector; China;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • P30 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - General

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