Underpaid and Corrupt Executives in China’s State Sector

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.

Founder CEOs, personal incentives, and corporate social irresponsibility

“…In contrast, since there is a low degree of overlap between other CEOs' self-identification and OI, they are likely to diverge from a firm's longterm goals (Reina et al, 2014). In this situation, other CEOs are likely to utilize CSI for rent-seeking, such as improving short-term performance to increase their salary (Feng & Johansson, 2018). This is because CSI helps firms create temporary competitive advantages through special means, thereby increasing profits (Chen & Mau, 2009).…”

Understanding the micro‐foundations of administrative corruption in the public sector: Findings from a systematic literature review

“…A lack of perceived fairness in compensation allows for moral disengagement and moral licensing (Jäkel, 2019; Pertiwi, 2022; Ripoll & Breaugh, 2019). Furthermore, underpayment does not only affect low‐ranking civil servants' corruptibility but also decreases leaders' willingness to persecute corrupt behavior by followers (Feng & Johansson, 2018). Increasing salaries has been shown to reduce corruptibility in an experimental setting (van Veldhuizen, 2013) but empirical evidence remains inconclusive (Kaufmann et al, 2019; Meyer‐Sahling et al, 2018).…”

Understanding the Micro-Foundations of Administrative Corruption in the Public Sector: Findings from a Systematic Literature Review

“…Furthermore, underpayment does not only affect low-ranking civil servants' corruptibility but also decreases leaders' willingness to persecute corrupt behavior by followers (X. Feng and Johansson 2018). Increasing salaries has been shown to reduce corruptibility in an experimental setting (van Veldhuizen 2013) but empirical evidence remains inconclusive (D. Kaufmann, Mehrez, and Gurgur 2019;Meyer-Sahling, Mikkelsen, and Schuster 2018).…”