J-Perk 5.03 serial key or number

Abstract

1. Introduction

In recent years, there has been a series of events where managers of China&#x;s listed companies, especially state-owned enterprises (SOEs), abusing managerial power in their own interests at the firm&#x;s cost. Chinese media has exposed a number of listed companies, such as China Railway Construction Corporation and Zhuhai Gree Group, spending staggering amount of money on top managers&#x; entertainment. A major stream of research investigates the causes of SOE senior executives&#x; perk consumption from such aspects as the agency cost (^{Jensen and Meckling,} ; Hart, ), internal and external governance mechanisms (Brickley and James, ; ^{Yermack, ; Grinstein et al.,} ), and management incentives (^{Rajan and Wulf,} ). However, there has been little research to examine the effect of policy burdens on the senior executives&#x; perks under the socialist economy.

We are motivated to examine SOE policy burdens and senior executives&#x; perks in China for the following reasons. Firstly, during the process of national economic development, most Chinese SOEs bear policy burdens imposed by the government (^{Lin et al.,} ), including strategic policy burdens and the social policy burdens (^{Lin and Tan,} ). For example, the government directs SOEs to develop national strategic industries, regarding energy, communications and transportation etc. Besides, SOEs are required by the government to recruit redundant staff and not to lay off workers for the maintenance of social stability (^{Lin and Li,} ). The policy burdens serve as a means by which the government intervenes in the economy (^Li, ). It is therefore difficult for the government to distinguish losses induced by policy burdens from those of SOEs&#x; poor managerial performance. This challenge worsens information asymmetry and in turn, increases agency cost which causes soft budget constraints, rent seeking, the moral hazard, managerial slacks, and corruption (Kornai, ; ^{Lin and Li, ; Ting and Huang, ; Fang et al., ; Guo, ; Zhao et al., ; Yu and Lee,} ). These issues constitute the political cost incurred by SOE policy burdens. Research on the association between SOE policy burdens and excessive perks of senior executives could shed light on the political cost.

Secondly, it has been a focus of public concern in China that SOE senior executives consume perks for their own interests. Large consumption of perks could do harm to firm value. For example, in , the annual accounting report of China Railway Construction Corporation, a large SOE engaged in railway construction, exposed an enormous sum of perks among which the entertainment expense reached $ million, accounting for nearly 10% of the company&#x;s net profit that year. In addition, Chinese media reveal that managers of Sinopec&#x;s Guangdong Petroleum Branch and Zhuhai Gree Group consumed a large quantity of luxurious liquor. ^{Atkinson and Stiglitz ()} suggest that Chinese SOE managers are more likely to spend ludicrously on such things as food, clothing, housing, transportation, and entertainment at the company&#x;s expense. Some studies estimate perks can amount to 15%&#x;32% of total executive compensation (^{Kato and Long,} ). Therefore, it is of great practical significance to study the perks of SOE executives.

Our objective in this paper is to examine whether policy burdens imposed on SOEs is associated with firms&#x; aberrant perks. Based on a sample of listed SOEs over &#x; period ( firm-year observations), we demonstrate that SOE policy burdens are significantly and positively associate with excessive managerial perks. We conduct robustness tests to mitigate the negative influence of endogeneity and find their results remain qualitatively robust. The further analysis suggests that strategic policy burdens of SOEs have stronger positive correlation with excessive perks than social policy burdens do. Additionally, the positive correlation between policy burdens and excessive perks is significantly weaker in eastern coastal provinces of China due to the higher degree of marketization. It is significantly mitigated in centrally administered SOEs (CSOEs) as they are subject to stricter supervision of Chinese central government.

Our paper makes the following contributions. Firstly, this paper enriches the literature on the economic consequences of SOE policy burdens. Extant research finds that SOE policy burdens have a significant influence on soft budget constraints (^{Kornai, ; Lin and Li, ; Li,} ), financing and investment decision making (^{Chen et al., ; Bai and Lian, ; Hao and Lu, ; Zhan et al.,} ), corporate performance (^{Liao et al., ; Sun and Liu,} ), and executives&#x; political promotion (^{Liu et al., ; Feng and Johansson, ; Xin et al.,} ). We find significantly positive impact of SOE policy burdens on senior executives&#x; excessive perks. Further, we find that compared with social policy burdens, strategic policy burdens have significantly stronger positive correlation with excessive perks. It provides enlightenment for the further research and valuable insights to policymakers and regulators not only in China, but in other countries concerning policy burdens.

Secondly, we add to the literature related to perks. Previous studies generally attribute managers&#x; perks to their agency behavior (^{Jensen and Meckling, ; Hart, ; Yermack,} ), internal corporate governance mechanism (^{Brickley and James (); Claessens et al. (); Andrews et al. ()}, external supervision (^{Yermack (); Bushee et al. (); Andrews et al.,} ) and insufficient compensation incentives (^{Rajan and Wulf, ; Marino and Zabojnik, ; Kato and Long, ; Adithipyangkul et al.,} ). We further this direction of research from a new perspective. In addition, existing research regards perks as a whole, which gives rise to two competing views of perk consumption. The first view argues that perks are a tool for senior managers to misappropriate a firm&#x;s surplus (^{Jensen and Meckling, ; Hart, ; Yermack,} ). The alternative view is that perks can be an incentive in an optimal employment contract to motivate employees (^{Fama, ; Rajan and Wulf,} ). However, it indicates that managerial perks can be a result of both agency costs and nonmonetary incentives (^{Cai et al.,} ). In our study, we follow ^{Luo et al. ()} to separate senior executives&#x; excessive perks and examine its relationship with SOE policy burdens, which thus enriches the research on perk consumption.

The rest of the paper is organized as follows. Section 2 is the literature review. Section 3 analyzes the institutional background. We present hypothesis development in section 4. The data selection procedures, methodology and empirical results are included in Section 5, and Section 6 concludes our study.

2. Literature review

3. Institutional background

In China, SOEs have been an important means for the government to carry out the catch-up development strategy and promote the development of national economy (^{Lin et al.,} ). In s, Chinese government realized that in order to transform China from an underdeveloped agricultural country into a developed industrial one, it had to establish an independent and complete industrial system. The key foundation is heavy industry. Therefore, since the first five-year plan, Chinese government has given priority to the development of heavy industry, and the subsequent five-year plans follow this development strategy. The heavy industry normally requires decades to develop with huge investment. However, as an underdeveloped agricultural country, China featured scarce capital and sufficient labor. It violated the theory of comparative advantage to develop heavy industry. Thus, private enterprises were unwilling to invest in heavy industry. SOEs were then required to prioritize the development of heavy industry, which is strategic policy burdens (^{Lin and Tan,} ). The imbalanced industry development strategy couldn&#x;t ensure enough jobs for urban residents, which negatively impact social stability. In order to provide sufficient job positions, the government asked SOEs to hire as many workers as possible. That is SOE social policy burdens. When reform and opening-up began in , SOEs dominated China&#x;s industrial sectors. SOEs&#x; share in China&#x;s total industrial output was % in Until , SOEs still employed % of urban residents and possessed % of total investment in industrial fixed assets (^{Lin et al.,} ).

Since s, SOEs have experienced many market-oriented reforms, which aim to enhance the vitality of enterprises, separate government from enterprise administration and expand SOEs&#x; operating rights. But SOEs still serve as a tool of Chinese government to make up for market defects and consolidate the foundation of the socialist economic system, which gives them a leading role in the national economy. The Decision of the Fourth Plenary Session of the 15th Central Committee states that state-owned economy should control industries and sectors which play an important role in national economic security, such as energy, communications, transportation and high-tech industry. The report of the 18th National Congress of the Communist Party of China (CPC) states that We must unswervingly consolidate and develop the state-owned economy. We will promote more investment of state-owned capital in important industries and key areas that are vital to national security and the lifeblood of the national economy, and continuously enhance the vitality, control and influence of the state-owned economy. SOEs are an important force in ensuring the implementation of the primary national strategies, promoting economic and social development, and enhancing overall national strength. Thus, SOEs bear certain economic, political, and social responsibilities.

In addition, the Chinese government implemented a series of political decentralization reform. In order to stimulate the local governments to increase economic growth, the central government has gradually delegated the local governments&#x; policy-making power and administrative responsibilities (^Zhang, ). At the same time, Chinese central government evaluates local officials based on a tournament incentive mechanism that political promotion is linked with local economic development (^Vo, ). The pursuit of local economic development makes local governments to impose development tasks on SOEs within their jurisdiction, such as increasing GDP, securing employment, raising fiscal revenues, and providing cheap public goods, which also increases the policy burdens of SOEs.

4. Hypothesis development

Managers can take advantage of insider knowledge for personal gains at the expense of shareholders due to information asymmetry between owners and managers (^{Jensen and Meckling, ; Grossman and Hart,} ). Many scholars believe competitive market mechanism can alleviate the aforementioned agency problems (^{Megginson and Netter,} ). On the one hand, the competitiveness mechanism in the product market could mitigate information asymmetry between managers and owners. The profit status of an industry is public information in a fully competitive market. Shareholders can assess a manager&#x;s performance by comparing with the actual profit status of the company (^{Stigler and Friedland,} ). Such public information also enables shareholders to structure a manager&#x;s remuneration package based on their performance comparison, and therefore, discourage shirking and opportunistic behaviors (^{Grossman and Hart, ; Gupta et al.,} ). On the other hand, the competitive manager market could restrain the agency behaviors of executives by means of its reputation mechanism. ^{Fama ()} argues that in a competitive manager market, managers are self-conscious about their performance record and will constantly seek market rewards. Competent managers will be hired with high salaries, and the rewards offered by their employers will be equivalent to the value of managers&#x; human capital. Therefore, managers must work hard to improve their reputation and value in order to improve their future reward (^{Fee et al.,} ).

However, policy burdens could mitigate the governance of competitive market mechanism on SOE senior executives&#x; agency behaviors. SOEs undertake both strategic policy burdens and social policy burdens. The former drives SOEs to invest in capital-intensive industries, which violates the theory of comparative advantage. The latter keeps SOEs overstaffed for social stability. Such social policy burdens have greatly increased labor costs and make them less competitive in the market. In return, the Chinese government lends a hand to SOEs. For example, commercial banks are required to make loans to SOEs with low interest rates (^{Faccio, ; Li et al.,} ). The government supports SOEs in mergers and acquisitions to increase market shares (^{Shleifer and Vishny,} ). And SOEs could acquire cheap raw material and preferential tax policies, which reduce their operation cost (^{Faccio, ; Lin and Li,} ). Therefore, SOEs&#x; performance is not only influenced by market competitiveness but also by policy burdens and government support. It is not reasonable to assess managerial performance by comparing SOE performance with that of their counterparts.

In addition, SOE policy burdens increase information asymmetry between Chinese government and SOEs, which also make it difficult to evaluate SOEs&#x; managerial performance. First, policy burdens hinder the improvement of corporate value to some extent. As such, SOE managers will take advantage of the information asymmetry and rationally choose to release information beneficial to themselves in order to secure more capital and resource support from the government. This enhances information asymmetry. Second, the policy burdens expand and complicate SOEs&#x; business and managerial activity (^{Lin and Li,} ). For example, local government often assigns SOEs poverty alleviation tasks such as local infrastructure work and public service. In the recent combat to the COVID epidemic, SOEs are explicitly required by Chinese State Council to expand the recruitment of graduates for two consecutive years. It worsens information asymmetry between the government and SOEs.

As such, SOE executives&#x; compensation contract based on economic performance has lost its incentive function. In recent years, the Chinese government has issued a series of regulations to impose pay ceiling and restrain executive compensation. On September 16, , six central government ministries jointly issued the Guidance on Further Regulating the Compensation System for Persons in Charge of CSOEs. On August 29, , Politburo of the CPC Central Committee reviewed and approved the Reform Plan for the Compensation System for Persons in Charge of CSOEs. The pay cap has led to an overall decline in SOE managers&#x; monetary compensation. Compared with mangers in the private sectors, the average salary of executives in SOEs is much lower, which may motivate SOE managers to seek excessive perks to make up for the loss in the monetary compensation. The reasoning above leads to the following hypothesis.

5. Empirical analysis