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Underpaid and Corrupt Executives in China’s State Sector

Xunan Feng and Anders Johansson ()
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Xunan Feng: Southwestern University of Finance and Economics

Journal of Business Ethics, 2018, vol. 150, issue 4, No 17, 1199-1212

Abstract: 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 toward an important relationship between executive compensation and corrupt behavior, thus providing valuable input to the understanding of executive pay and its effects in China’s state sector.

Keywords: Corruption; Compensation; Executives; Incentives; State sector; China (search for similar items in EconPapers)
JEL-codes: D73 G38 J30 M52 P30 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s10551-016-3190-y

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