Do Managers Perform for Perks?

70 Pages Posted: 29 Aug 2009

See all articles by Donghua Chen

Donghua Chen

Nanjing University

Oliver Zhen Li

National University of Singapore (NUS)

Shangkun Liang

Nanjing University - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 29, 2009

Abstract

We examine how the managerial consumptions of perquisites are determined and whether and how they impact firm value. On the one hand, if the consumptions of perks are a result of agency cost, then they likely represent managerial excesses that expropriate shareholder wealth and they destroy firm value. On the other hand, when the transaction cost of monetary compensations is high due to information asymmetry, government regulations and media scrutiny, perks can provide incentives that motivate managers to work harder to create shareholder wealth and they potentially enhance firm value. The Chinese economic environment provides a unique opportunity to examine this research topic this is of universal interest. Using manually - collected data on direct monetary compensations and perks, we find that perks are provided when the relative pay between top managers and average employees is low, in firms with high economic rent and growth. Further, perks are positively associated with future firm value, but to a much lesser extent than monetary compensations. Therefore, perks appear to motivate managers to work harder to create shareholder wealth but are not as effective as monetary compensations. Finally, the effect of perks is more pronounced for firms with high economic rent, high growth and low relative pay between top managers and average employees.

Keywords: compensations, perks, performance

JEL Classification: G30, G38, M41

Suggested Citation

Chen, Donghua and Li, Oliver Zhen and Liang, Shangkun, Do Managers Perform for Perks? (August 29, 2009). Available at SSRN: https://ssrn.com/abstract=1464015 or http://dx.doi.org/10.2139/ssrn.1464015

Donghua Chen

Nanjing University ( email )

Nanjing, Jiangsu 210093
China

Oliver Zhen Li (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Shangkun Liang

Nanjing University - School of Business ( email )

22 Hankou Road
Nanjing, Jiangsu 210093 210093
China

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