Abstract

http://ssrn.com/abstract=2355744
 


 



Executive Perks and the Horizon Effect in China


Martin J. Conyon


Lancaster University; Wharton School, Center for Human Resources

Junxiong Fang Sr.


Fudan University - School of Management

Lerong He


State University of New York (SUNY) College at Brockport

May 22, 2014


Abstract:     
We investigate whether executives consume abnormal perks in the CEO’s terminal years to test the horizon effect. Using data on Chinese publicly traded firms between 2003 and 2011 we find that perks are significantly higher in the last two years of CEO tenure compared to previous years. Executive perks in CEO terminal years is lower when the board is more independent, when managerial ownership is higher, when the external auditor is more reputable, and when product market competition is more intense. Abnormal perks are higher in state-owned enterprises (SOEs) compared to non-SOEs. Perks differ by CEO turnover types. Voluntary CEO turnovers and turnovers with external successors are associated with higher excess perk consumption than forced turnovers and turnovers with internal successors. We find little evidence that perks substitute for executive compensation. Our results suggest that abnormal perk consumption is associated with resource diversion and not by efficient compensation contracts in China. Overall, the empirical evidence demonstrates a clear horizon effect and a spillover effect where all executives consume more perks at the expense of shareholders.

Number of Pages in PDF File: 50

Keywords: Perquisites; Horizon effect; Corporate Governance; China

JEL Classification: G3

working papers series





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Date posted: November 18, 2013 ; Last revised: June 25, 2014

Suggested Citation

Conyon, Martin J. and Fang, Junxiong and He, Lerong, Executive Perks and the Horizon Effect in China (May 22, 2014). Available at SSRN: http://ssrn.com/abstract=2355744 or http://dx.doi.org/10.2139/ssrn.2355744

Contact Information

Martin J. Conyon (Contact Author)
Lancaster University ( email )
Lancaster LA1 4YX
United Kingdom
Wharton School, Center for Human Resources ( email )
3600 Locust Walk
Philadelphia, PA 19104-6365
United States
Junxiong Fang Sr.
Fudan University - School of Management ( email )
No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China
Lerong He
State University of New York (SUNY) College at Brockport ( email )
Brockport, NY 14420
United States
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